The UK has slipped into recession, contrasting with a buoyant US economy, official figures showed on Thursday. This complicates matters for the Bank of England as it tries to balance its monetary policy between accommodating a weak economy and bringing down inflation towards its two per cent target.
Gross domestic product, a key measure of economic growth, fell by 0.3 per cent between October and December, the latest Office for National Statistics data shows. The contraction is more than the 0.1 per cent that economists had forecast and comes on the heels of a 0.1 per cent negative economic growth in the quarter ended September.
For the whole of 2023, the economy grew by 0.1 per cent. However, excluding the years of the COVID pandemic, the latest annual growth figure is the weakest since the global financial crisis when the UK and major economies were mired in a severe recession.
Meanwhile, in the US, consumer prices increased by more than expected in January as the cost of rental housing rose. The consumer price index, or CPI, increased by 0.3 per cent month-on-month, the Bureau of Labour Statistics reported. On a yearly basis, consumer prices rose by 3.1 per cent, less than December’s reading of 3.4 per cent. Economists expected a monthly increase of 0.2 per cent and an annual gain of 2.9 per cent.
The core CPI, which excludes volatile food and energy prices, accelerated to 0.4 per cent in January and was up by 3.9 per cent from a year ago, unchanged from December. This report deluded expectations for a May interest rate cut.
Finally, optimism among German investors improved in February, underpinned by increasing confidence that Europe’s largest economy will return to growth amid falling inflation and expectations that the European Central Bank will start cutting interest rates sometime this year.
The closely-watched ZEW indicator of economic sentiment soared to 19.9 in February from 15.2 the previous month. This reading was the highest since February 2023, when the score was 28.1. The score also easily exceeded economists’ forecast of 17.5.
However, the assessment of the economic situation decreased significantly to the weakest since June 2020 with the corresponding index dropping to -81.7 from -77.3 in the prior month. The score was expected to fall moderately to -79.
“Looming interest rate cuts seem to have a doping effect” on investors, Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe private bank, said.
This article does not constitute legal and/or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap.371 of the Laws of Malta) and the Investment Services Act (Cap.370 of the Laws of Malta).
