Your Leading Indicators | Interest Rates | Outlooks | Green Incentives
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 commodities, trade, equities and more. in the world of economics. Download the dashboard for in-depth analysis into commodities, trade, equities and more.
Is it too early to discuss rate cuts?
As expected, the US Federal Reserve (Fed), Bank of England (BoE) and European Central Bank (ECB) all increased their interest rates last week. The Fed lifted its base rate by 25bps to a target range of 4.50% - 4.75%, while the BoE and ECB raised their base rates by 50bps to 4.00% and 3.00%, respectively. Additionally, all three central banks adjusted their tone towards future hikes. Indeed, the BoE dropped previous language about its willingness to act “forcefully” and instead noted it will just “tighten policy” if price pressures persist. The softened tone suggests that the current hiking cycle could nearly be over. Money markets agree, pricing in a rate cut by the end of the year. However, Oxford Economics feels this is premature, expecting the base rate to peak at 4.25% in March, where it will remain until at least the end of the year. Lower interest rates will be supportive of real estate pricing and debt costs when the central bank decides to cut rates.
The BoE’s outlook has improved
The BoE now expects the UK economy to contract by -0.5% in 2023, better than -1.5% forecast in November. This shallower contraction reflects an improved consumption outlook, due to ongoing labour market strength and moderating energy prices. Declining energy prices have also impacted the BoE’s inflation outlook, with inflation now forecast to fall to 3.0% by Q1 2024 (4.0% last forecast). Meanwhile, labour market resilience is expected to remain, with the current unemployment rate growing slightly from 3.7% to 4.25% in 2023, lower than the 5.0% forecast in November. Despite robust labour markets, Lee Elliott notes that recent job loss announcements within certain sectors may cause some employees to revert to pre-covid working conditions, by increasing their office presence, which could support office demand.
EU roadmap for green incentives
In response to the $369 billion US Inflation Reduction Act, the EU has revealed its strategy to become a leading player in clean technologies. The Green Deal Industrial Plan builds upon statements by the European Commission President in Davos and calls for prompt action from both the European Parliament and EU member states to boost Europe's clean technology sector. While intentions behind the plan are commendable, the measures mostly summarise existing mechanisms and proposes repackaging €250bn from existing EU funds. Progress has already been made to promote growth of low-carbon industries. The EU has seen a shift to solar, with solar PV capacity reaching 209 GW in 2022, with a target of over 320 GW by 2025, more than doubling the amount from 2020. The plan is expected to provide further opportunities to access financing for sustainable and low-carbon projects.
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