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? - 24 January 2020
Wells Fargo Economics & Financial Report / Jan 25, 2020
Fears of an escalating coronavirus outbreak reached the United States this week, as a Washington state man became the first confirmed domestic case and the international total reached more than 800.
This Week's State Of The Economy - What Is Ahead? - 12 April 2024
Wells Fargo Economics & Financial Report / Apr 18, 2024
The March consumer price data dominated the economic discussion this week and are the latest to support that the timing and degree of Fed easing will be later and smaller than many of us previously expected.
This Week's State Of The Economy - What Is Ahead? - 07 February 2020
Wells Fargo Economics & Financial Report / Feb 08, 2020
U.S. employers added 225K new workers to their payrolls in January, which handily beat expectations. But the factory sector shed jobs for the third time in four months, and net layoffs were reported for finance and retail as well.
This Week's State Of The Economy - What Is Ahead? - 07 October 2020
Wells Fargo Economics & Financial Report / Oct 10, 2020
In the immediate fallout after the lockdowns in the early stages of this pandemic, there was a lot of discussion about the shape of the recovery.
This Week's State Of The Economy - What Is Ahead? - 21 August 2020
Wells Fargo Economics & Financial Report / Aug 18, 2020
Despite indications of lost momentum elsewhere, residential construction activity is picking up steam.
This Week's State Of The Economy - What Is Ahead? - 01 May 2020
Wells Fargo Economics & Financial Report / May 04, 2020
U.S. GDP declined at an annualized rate of 4.8% in the first quarter, only a hint of what is to come in the second quarter.
This Week's State Of The Economy - What Is Ahead? - 05 August 2022
Wells Fargo Economics & Financial Report / Aug 08, 2022
The Bureau of Labor Statistics reported this morning that nonfarm payrolls increased 528,000 for the month of July, easily topping estimates, lowering the unemployment rate to 3.5%.
This Week's State Of The Economy - What Is Ahead? - 05 May 2023
Wells Fargo Economics & Financial Report / May 11, 2023
In April, employers added 253K jobs and the unemployment rate fell to 3.4%. During the same month, the ISM services index edged up to 51.9, while the ISM manufacturing index improved to 47.1.
This Week's State Of The Economy - What Is Ahead? - 23 October 2020
Wells Fargo Economics & Financial Report / Oct 24, 2020
A recent strong report from the National Association of Homebuilders set the tone for another round of strong housing data. The NAHB index rose two points to a record high 85.
This Week's State Of The Economy - What Is Ahead? - 04 September 2020
Wells Fargo Economics & Financial Report / Aug 29, 2020
Employers added jobs for the fourth consecutive month in August, bringing the total number of jobs recovered from the virus-related low to 10.5 million.
