IFX Market Report: Wednesday 14th June 2023

In April, the British economy experienced a return to growth, surpassing the expectations of the Bank of England. According to the Office for National Statistics (ONS), the GDP increased by 0.2%, bouncing back from a 0.3% contraction in March. This growth aligned with the consensus forecast of 0.2% among economists but exceeded the Bank of England's projections, which had predicted no growth in GDP for the first half of 2023. Chancellor Jeremy Hunt commented on the positive economic development, highlighting that the International Monetary Fund (IMF) predicts faster growth for the UK compared to Germany, France, and Italy starting from 2025.

Although regular pay excluding bonuses saw a notable increase of 7.2% in the three months leading up to April, it still lags behind the inflation rate, which represents the rate at which prices rise. The Bank of England has expressed concerns that substantial pay raises are contributing to the UK's persistently high inflation rates. To curb price rises, the Bank has raised interest rates 12 times since 2021. While higher interest rates benefit savers, they have led to higher repayment costs for millions of mortgage holders. Recent fears of the Bank of England raising interest rates even further, from the current 4.5% to potentially 5.5%, have caused anxiety in the mortgage market.

In the United States, prices for eggs, petrol, and furniture decreased last month, resulting in a significant reduction in inflation compared to its peak a year ago. The Labor Department reported that inflation, measured by the rate at which prices rise, stood at 4% for the 12 months ending in May. This marked a decline from the 4.9% inflation rate observed in April and represented the 11th consecutive month of easing price increases.

The pound started the week on the backfoot as business confidence in the UK fell and sterling was posting 1.2480 against the dollar and 1.16 against the Euro. News regarding US inflation data falling plus this mornings UK data pushed the pound 1.2620 & 1.17 respectively. EURUSD currently resides around 1.0790

Goldman Sachs CEO David Solomon expressed cautiousness about the US economy despite its surprising resilience this year. In an interview, Solomon described the current economic outlook as uncertain and emphasized the need for caution. He forecasted a potential scenario that might not lead to a recession but would still feel like one, characterized by sluggish growth and persistent inflation.

The World Bank has revised its global growth forecast for 2024, reducing it from 2.7% to 2.4% in its latest Global Economic Prospects report. The downward revision was attributed to central bank tightening and increasingly stringent credit conditions. However, the World Bank has increased its forecast for this year, now predicting a 2.1% rise in real global GDP, compared to the previous forecast of 1.7%. The global economy expanded by 3.1% last year.

There is a fair amount of key data out this week including the US Fed Interest rate decision tonight at 7pm, which is expected to hold rates at 5.25%. More eyes will likely be focused on the FED’s comments after the decision to get a feel for their outlook. Tomorrow sees the Eurozone monetary policy meeting at 13.15, and US Retail sales later in the afternoon.

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