Leading Indicators | Rate Hikes | Recession | COP27
Discover key economic and financial metrics, and what to look out for in the week ahead.
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Here we look at the leading indicators in the world of economics. Download the dashboard for in-depth analysis into commodities, trade, equities and more.
Is the hiking cycle nearly over?
Last week, the US Federal Reserve implemented its fourth consecutive 75bps interest rate hike. Economists expect this to be the last rate hike of this size, with a 50bps rate rise forecast at the Fed’s next meeting on 31st January, which could be the central bank’s last hike for this cycle. Similarly, the Bank of England increased its base rate by 75bps last week to a 14-year high of 3.00%, which was its largest rate hike since 1989. This is the central bank’s eighth consecutive rate hike, with the interest rate rising by 290bps in total since mid December. Economists expect the Bank of England to also scale back future rate hikes, anticipating a smaller rise of 50bps at its December and February meetings and to then pause. With this approach, the base rate would peak at 4% early next year.
BoE forecasts a long recession ahead
The Bank of England (BoE) updated its economic forecasts based on two scenarios. In the first scenario where the central bank lifts its interest rate to money market expectations of 5.25%, the UK’s economy would contract by c.3% overall and would experience eight quarters of contraction. Here, inflation would fall to 1.4% by 2024 and to 0% by 2025. In the second scenario, where interest rates remain at the current level of 3.0%, the central bank still forecasts five quarters of contraction. Inflation is projected to peak at 10.9% in Q4 2022 before falling to 5.6% in Q4 2023, 2.2% at the end of 2024 and below its 2% target at 0.8% in 2025. The two scenarios are relatively uncertain as the central bank noted that the recent market pricing for peak interest rates is too high, while “further increases” might be required for inflation to return sustainably to target.
UK triples climate adaptation funding at COP27
Rishi Sunak, alongside world leaders including Emmanuel Macron and Joe Biden, is in attendance at COP27 to accelerate global efforts in tackling the climate crisis. To maintain the UK’s climate change goals, the Prime Minister is expected to promise to speed up the UK’s transition to renewable energy to achieve its net-zero target by 2050. The UK’s Foreign Secretary has also announced a commitment to triple climate adaptation funding from £500 million in 2019 to £1.5 billion in 2025. Within real estate, our study on prime Central London and Sydney offices found a rental and sales price premium for green rated buildings. Meanwhile, our Wealth Report Attitudes Survey shows 40% of the 600 wealth adviser respondents turning to ESG-related property investments were doing so to future-proof their portfolio.
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