Leading Indicators | Another BoE rate hike expected, yet the peak is in sight
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.
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Is the peak in sight?
Later this week, the Bank of England (BoE) will make its interest rate decision, with economists expecting an additional rate hike varying between 25 and 50bps, while money markets are predicting 25bps, lifting from its current rate of 5%. Meanwhile, both the US Federal Reserve (Fed) and European Central Bank (ECB) raised borrowing costs by a quarter-point last week, with rates reaching 5.25-5.50% and 4.25%, respectively.
Although there was a downward surprise in the UK’s latest CPI data, strong pay growth and a still tight labour market means we may see further tightening. However, indications are that the peak could be in sight, with money markets pricing in a peak of 5.75% by November and economists expecting UK rates to top out by Q3/Q4 this year between 5.50-5.75%. Despite higher interest rates, the UK remains relatively attractive globally, remaining second after the US as a destination for cross-border real estate capital this year, albeit on soft global volumes.
Eurozone core inflation remains sticky
Eurozone headline inflation has moderated to 5.3%, according to preliminary figures, driven by lower food and energy inflation, although core inflation is holding steady at 5.5%.
At the country level we continue to see inflation divergence across the bloc; Spain’s inflation has moved back to just above the 2% target, while German inflation sits higher at 6.2%, albeit down from 6.4% in June. This divergence is also reflected in economic growth. While France and Spain saw sustained GDP growth rates in Q2, Germany's economy stagnated, and Italy experienced a contraction. The overall Eurozone growth outlook for 2023 is positive at 0.6%, a revision upwards from 0.4% in February, according to Oxford Economics.
Reforms to UK's carbon trading scheme
The UK's carbon trading scheme has been reformed contributing to a discount between UK carbon prices (£47 a tonne) compared to its European counterpart (£75.86 or €88.50 a tonne).
Other carbon-related policy changes have also been announced, ranging from Scottish carbon capture to the granting of new North Sea oil and gas licences. The residential sector has also seen a delay to anticipated energy efficiency targets. Despite the mixed picture, policy is not the only driver of sustainability measures. For example, between 2017 and 2022, the US voluntary Taskforce for Climate-related Financial Disclosures (TCFD) saw the AUM of firms signed up increase from $25tn to $200tn.
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