This week’s first significant release for the pound was the Claimant Count Change, which came out on Tuesday morning. Forecasts expect the number of people claiming unemployment-related benefits during the previous month to rise from 17.8K to 20.3, but it came in lower than expected and below last month’s reading at 16K.
The latest growth data was also released on Wednesday, coming in lower than expected at -0.3%. Forecasters did expect the UK economy to shrink, with monthly GDP predicted to fall to -0.1% from 0.2%. Services, contract manufacturing, and construction, which are considered the three main industry sectors in the UK, all showed declining outputs.
The most impactful event of the week was Thursday’s Bank of England interest rate meeting. Policymakers opted to hold rates steady in their meetings yesterday and although the outcome was the same as the Federal Reserve the day before, the sentiment behind the decisions was markedly different.
Whereas the Fed’s market-moving comments from Jerome Powell suggested interest rate cuts were coming “into view”, Bank of England Governor Andrew Bailey reiterated that monetary policy would remain restrictive for some time yet. What was perhaps even more insightful into the Bank of England’s stance was that three of the nine policymakers voted to raise rates again.
Sterling reacted positively to the news, extending earlier gains and hitting the highest level since August.
Finally, the UK’s Flash Manufacturing and Services PMIs were released this morning. The manufacturing business activity data came in below the 47.6 forecast at 46.4, but services exceeded expectations at 52.7, against the 51.0 predicted. The services industry has now been back in expansion for the last two months, pointing to the fastest rise in private sector business activity since June.
EUR
The European Central Bank also held rates this week, announcing its decision on Thursday at 1:15pm. There was only a 2.7% chance of a rate cut ahead of the monetary policy meeting despite inflation falling to 2.4% across the region.
Since the CPI inflation data release, markets have increased bets on ECB rate cuts in 2024 from around 85 basis points to 140 over the last two weeks. The first of these is expected as early as March, and throughout 2024, markets have priced in as many as six quarter-point cuts. This is despite the hawkish narrative from the narrative from the central bank, with ECB President Christine Lagarde saying, “We should absolutely not lower our guard.”
French and German Services and Manufacturing PMIs were released today (Friday 15th December). French flash manufacturing and services PMIs both landed lower than expected at 43.3 and 44.3, respectively, and down from last month’s readings. The German flash manufacturing PMI came in as expected at 43.1, and the services PMI was below forecast at 48.4. All the data still points to business activity falling below the key 50 level, which distinguishes growth from contraction.
