Leading Indicators | Are we out of the woods yet? The latest BoE forecasts suggest we might be
Discover key economic and financial metrics, and what to look out for in the week ahead.
2 minutes to read
Here we look at the leading indicators commodities, trade, equities and more. in the world of economics. Download the dashboard for in-depth analysis into commodities, trade, equities and more.
CAUTIOUS OPTIMISM
The UK has (so far) avoided the recession that nearly all official forecasters anticipated at the beginning of the year. Meanwhile, the expected underperformance of the UK economy versus its European counterparts hasn’t widened further, with both the UK and Euro Area GDP growing by +0.1% q-q in Q1 2023. Pointing to this improved sentiment, the Bank of England provided its largest upgrade to growth projections since 1997, removing its previous expectation of the UK’s longest recession on record. The central bank now forecasts the UK economy to grow by +0.9% in the year to Q2 2024, which compares to its previous forecast of a -0.3% contraction. Meanwhile, some economists have suggested that today’s labour market data alleviates some of the pressure on the Bank of England to hike rates any further at its next meeting on 22nd June. Indeed, UK unemployment increased by 0.1ppts to 3.9% and headline total pay growth slowed in Q1.
POLARISATION PERSISTS
Across the UK Monthly MSCI index, commercial property yields have started to rise. In April, 26% of MSCI sector yields softened on a monthly rolling average basis, the highest proportion of softening yields since August 2020. However, it remains below the 76% share in March 2009. Meanwhile, 22% of MSCI yields compressed in April, and 52% were stable. However, our latest Investment Yield Guide shows that prime yields are more stable, indicating polarisation within the market. In May, 67% of prime yields were stable, whilst 16% were softening and 16% were compressing. Polarisation in the performance of prime and secondary assets will likely continue, as prime yields are expected to stabilise quicker than secondary. Here, the Yield Guide points to positive or stable market sentiment for most retail subsectors, industrial and the specialist sectors.
CAN AI DRIVE THE ECONOMY?
New research suggests that AI adoption could lead to a +7% increase or c.$7 trillion rise in annual global GDP over the next 10 years. In line with this, other studies estimated a 3ppt rise in annual labour productivity growth in firms that adopt the new AI technology. While time will tell if this transpires, this could be significant for the UK, which has seen sluggish productivity growth, with an hour of work in 2022 producing just +0.4% more output than in 2021, according to the ONS. AI could be game changing for many professions, with studies suggesting the legal services, accountancy and travel sectors to be the most impacted.
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