Last week’s UK Budget saw the Chancellor, Jeremy Hunt, announce a number of personal and business tax cuts that were designed to improve economic growth in 2024 and beyond. The total measures announced were set to provide a boost of £7bn this fiscal year and £14bn in 2024-2025 but left the UK economic growth numbers no different in 2023, marginally stronger in 2024, and then weaker in 2025, according to the OBR (Office for Budget Responsibility).

The measures to help business were similar to what was asked for by the CBI (Confederation of British Industry), but will they materially alter the UK’s performance in terms of investment, both domestic and foreign? The effects on unemployment and inflation were also minimal, suggesting that fiscal policy is unlikely to do the heavy lifting in returning growth to trend or above, and the OBR also indicated that UK potential growth rates are now 1.6% per annum, when they had been estimated at 1.8% previously.  

The UK economy isn’t performing well, but it isn't doing that badly either, and although the Bank of England has sent its speakers out in numbers to downplay the risks of interest rate cuts in the short-term, the reality may still be that, for the UK to grow more quickly, the central bank will have to ease the cost of borrowing burden on individuals and businesses. 

There are few releases from the UK this week to support the pound, but estimates for mortgage lending in October will be interesting, as mortgage lending has been reducing recently. Further signs of housing weakness could indicate ongoing troubles for industries/businesses that rely on a strong housing market to fuel consumption of durables, in my view. 

Euroland continues to perform poorly as well. Despite some uptick in last week’s provisional November PMIs (Purchasing Managers’ Index), it is still the worst performing of the three major economies. That position is unlikely to materially change with this week’s releases of provisional November CPI (Consumer Price Inflation) figures from Germany, France and Euroland, unemployment figures from Germany, and revised Q3 GDP (Gross Domestic Product) figures from France.

One release of note to watch is the Euroland M3 money supply data. Will the year-on-year contraction in Euroland money supply figures get better, as per consensus expectations, or worse? If worse, then what implications will that have for ECB (European Central Bank) policy? Nobody at the ECB is currently talking about interest rate cuts and it still has a massive overhang of asset purchases to start reducing, but in the face of a weak economy and reduced inflation pressures, perhaps interest rate cuts will be sanctioned quicker than currently expected? The EUR is again testing higher against the USD, will this week see it make a decisive break, or fail again?

After last week’s Thanksgiving holiday interrupted trading, this week will see the US focus on housing market data, GDP, personal spending and consumer confidence readings. 

The signals from the US economy remain mixed. There are definite signs of weaker spending and a soft housing market (the lowest in existing home sales in more than 13 years), but on the flip side there are signs of strength in personal spending, GDP growth and the labour market. Until recently, data releases from the manufacturing sector were robust, but now the evidence appears to be pointing in the opposite direction. So will the figures from this week bring the markets any greater clarity, or will the USD still be suffering the same mixed signals that has undermined it lately? 

There are also a number of interesting speeches due from Fed officials, with Waller and Powell due to speak this week, and let’s not forget the latest Beige Book (the Fed’s assessment of current economic conditions). Plenty to muddy the waters for the US dollar, with the markets likely to focus on what the Fed has to say about economic performance and policy risks, in my view.

Already this week, the Israeli central bank has left interest rates on hold, as expected, and this is after the Swedish Riksbank surprisingly left interest rates on hold last week. In the remainder of this week, I suspect there will be no surprises from the other central banks due to announce. 

The Reserve Bank of New Zealand, the Bank of Thailand and the Bank of Korea are all expected to leave interest rates on hold. I think there are increasing questions over whether the central banks are focused on the right threat, with global demand appearing to be cooling, and problems in the global supply chain easing. The weakness of the USD should also cool some inflationary threats to emerging markets and developed economies, in my view.