nflation in the U.K. receded for the third straight month in January, with the headline rate coming in lower than expected at 10.1% year-over-year. The biggest upward contributions to the headline rate came from household energy and food prices. Excluding those more volatile factors, core CPI fell to 5.8% year-over-year. Given that headline inflation is still five times the Bank of England's (BoE) 2% target, the central bankraised its policy rate 50 bps to 4.00% at its February meeting and signaled further monetary tightening ahead. Against this backdrop, we forecast a final 25 bps rate increase at the BoE's March meeting. Inflation slowing more sharply than expectations also reinforces the view that an end to BoE rate hikes is in sight, especially against a backdrop of underwhelming U.K. economic activity. We expect the policy rate to remain at 4.25% through late 2023, before the BoE begins cutting rates in Q4 of this year.
Elsewhere, Japan's economy experienced a somewhat uneven growth path in 2022, bouncing back and forth between expansion and contraction. While it ended on a positive note, Japan's Q4 GDP data release showed that the economy grew less than expected. More specifically, GDP rebounded 0.2% quarter-over-quarter in Q4 after a negative print in Q3. The underlying details of the report reflected mixed sector trends, with private consumption rising 0.5% quarter-over-quarter but business spending falling 0.5%. We expect these mixed economic trends to flow through to this year, altogether expecting growth in Japan to average a moderate 1.3% in 2023, essentially unchanged from last year. At the same time, inflation appears to be trending higher. In December, nationwide headline CPI reached 4% year-over-year, and while more contained compared to its global peers, this is quite elevated compared to Japan’s recent history. Only moderate growth combined with rising inflation pressures adds to the Bank of Japan's (BoJ) dilemma of if and when it should begin to tighten monetary policy, especially with a new BoJ governor on the way. While our base case is for no change in policy settings this year, we will be closely watching for any signals that the BoJ is ready to move away from easy monetary policy.
Down under in Australia, labor trends continued to soften in January. The job market failed to regain its footing last month, with employment declining for the second month in a row. Although consensus expectations were for a 20,000-job gain, employment actually fell by 11,500. Notably in contrast to the December jobs report, this drop in employment was completely due to a decline in full-time employment (-43,300), while part-time employment increased (+31,800). Other parts of Australia's economy also experienced some softness late last year, but we believe this soft patch is temporary and do not forecast Australia to fall into recession this year, nor do we expect slower growth to prevent the Reserve Bank of Australia (RBA) from continuing to tighten monetary policy in order to bring down inflation.
This Week's State Of The Economy - What Is Ahead? - 22 April 2022
Wells Fargo Economics & Financial Report / Apr 27, 2022
I’ll wish you a Happy Earth Day anyway. Don’t expect a card this year. While the Earth continues to thankfully revolve at a steady rate, rising mortgage rates appear to be slowing residential activity
This Week's State Of The Economy - What Is Ahead? - 15 January 2021
Wells Fargo Economics & Financial Report / Jan 18, 2021
Retail sales fell 0.7% in December, the third straight monthly decline. Sales are still up 2.9% over the year, however.
This Week's State Of The Economy - What Is Ahead? - 01 November 2024
Wells Fargo Economics & Financial Report / Nov 06, 2024
The unemployment rate, which is derived from the household survey and counts those not working due to a strike or severe weather as employed, held steady at 4.1%. A 25 bps rate cut at next week\'s FOMC meeting remains highly likely.
This Week's State Of The Economy - What Is Ahead? - 18 October 2019
Wells Fargo Economics & Financial Report / Oct 19, 2019
Personal consumption is still on track for a solid Q3, but retail sales declined in September for the first time in seven months.
This Week's State Of The Economy - What Is Ahead? - 18 August 2023
Wells Fargo Economics & Financial Report / Aug 23, 2023
The FOMC meeting minutes acknowledged the economy\'s resilience and continued to stress the Committee\'s resolve to bring inflation back down toward its 2% goal.
This Week's State Of The Economy - What Is Ahead? - 10 September 2020
Wells Fargo Economics & Financial Report / Sep 12, 2020
Although the recovery from the COVID recession is still far from over, the U.S. economy is bouncing back faster than many expected.
This Week's State Of The Economy - What Is Ahead? - 19 June 2020
Wells Fargo Economics & Financial Report / Jun 22, 2020
Retail sales kicked off the week with a bang, rising 17.7% month-over-month in May. The increase was larger than every single one of the 74 forecast submissions.
This Week's State Of The Economy - What Is Ahead? - 30 August 2024
Wells Fargo Economics & Financial Report / Sep 04, 2024
Revisions to PCE were broad based across the goods and services components and make it less clear that the restrictive interest rate environment is poising a major impediment to household spending.
This Week's State Of The Economy - What Is Ahead? - 01 October 2021
Wells Fargo Economics & Financial Report / Oct 10, 2021
Economic data this week indicated that the ongoing expansion still has some momentum despite some familiar headwinds, though this week\'s releases were largely overshadowed by a busy week on Capitol Hill.
July 2020 Economy At A Glance
Wells Fargo Economics & Financial Report / Jul 30, 2020
The recent surge in COVID-19 cases indicates that elected officials re-opened the economy too soon, that too many Americans are flaunting social distancing guidelines, and that the virus is likely to be around longer than we’d hoped.
