Key Economic Updates: UK and US GDP Figures, Core PCE Deflator, and UK Mortgage Approvals
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UK Q1 GDP final – 30/06 – in the recent interim Q1 GDP numbers the UK economy managed to avoid a contraction after posting Q1 growth of 0.1%, although it was a little touch and go after a disappointing economic performance in March, which saw a monthly contraction of -0.3% which acted as a drag on Q1's 0.1% expansion.
The reason for the poor performance in March was due to various public sector strike action from healthcare and transport, which weighed heavily on the services sector which saw a contraction of -0.5%. The performance would have been worse but for a significant rebound in construction and manufacturing activity which saw strong rebounds of 0.7%. There is a risk that this modest expansion could get revised away, however recent PMI numbers have shown that, despite rising costs, business is holding up, even if economic confidence remains quite fragile.
US Q1 GDP final – 29/06 –
the first iteration of US Q1 GDP was disappointing with the economy growing by 1.1%, slowing by more than expected, largely due to a bigger than expected scaling down in inventories. This was subsequently revised up to 1.3%, helped by an upward revision to 3.8%, which was a strong rebound from 1% in Q4, as US consumers went out on a New Year splurge. Slightly more concerning was rise in core PCE over the quarter, from 4.4% in Q4 to 5%. We're not expecting to see much of a change in this week's revisions, although headline might get revised to 1.4%, while most of the attention will be on the core PCE number for evidence of any downward revisions, as more data gets added to the wider numbers.
US Core PCE Deflator (May) – 30/06 –
this week's core PCE deflator numbers could go some way to pouring further cold water on the Fed's claims that it has another 2 rate rises in its locker. A couple of weeks ago the US central bank warned that while it had taken the decision to implement rate increase pause, it still felt that inflation risk was skewed to the upside and that the market should prepare itself for a terminal rate of 5.6%. This was a little unexpected given the current direction of travel we've been seeing over the past few months, when it comes to prices. When the Core PCE Deflator numbers were released in April headline inflation did edge up from 4.6% to 4.7%, while the deflator itself pushed up to 4.4% from 4.2%, begging the question as to whether central bank officials are right to be cautious. This week's core PCE numbers, along with personal spending numbers ought to offer markets an additional insight as to whether these concerns are valid, or whether the Fed's recent hawkishness is justified.
UK Mortgage Approvals (May) - 29/06 -
since the start of the year we've seen a modest improvement in mortgage approvals, after they hit a low of 39.6k back in January. The slowdown towards the end of last year was due to the sharp rise in interest which weighed on demand for property as well as house prices. As energy prices have come down, along with lower rates, demand for mortgages picked up again with March approvals rising to 51.5k, before slipping back to 48.7k in April. This could well be as good as it gets for a while with the renewed increase in gilt yields, we've seen in the past few weeks, prompting weaker demand for new borrowing. Similarly net consumer credit has also started to improve after similar weakness. Although inflationary pressures are starting to subside, the increase in wages is prompting concern over higher rates and higher mortgage costs in the coming months. Given current levels of uncertainty consumer credit numbers could well increase further, while net lending could see a further decline after April lending fell by -£1.4bn, the weakest number since July 2021.
By Michael Hewson (Chief Market Analyst at CMC Markets UK)
