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.
The Regional Breakdown Of A Labor Market In Meltdown
Wells Fargo Economics & Financial Report / May 26, 2020
Employment fell in all 50 states and 43 states saw their unemployment rate rise to a record in April. The damage is already hard to fathom-a 28% unemployment rate in Nevada and still another month of job losses ahead.
This Week's State Of The Economy - What Is Ahead? - 26 April 2024
Wells Fargo Economics & Financial Report / Apr 29, 2024
We got our first look at Q1 GDP, which downshifted to a 1.6% annualized pace and was accompanied by a hot core PCE deflator reading.
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.
25 January 2021 Economic Outlook Report
Wells Fargo Economics & Financial Report / Jan 30, 2021
In the second installment of our series on economic risks in the foreseeable future, we analyze the potential for higher inflation in coming years stemming from excess demand.
This Week's State Of The Economy - What Is Ahead? - 03 September 2021
Wells Fargo Economics & Financial Report / Sep 10, 2021
e move into the Labor Day weekend celebrating the 235K jobs added in August, while simultaneously lamenting that it was about half a million jobs short of expectations.
This Week's State Of The Economy - What Is Ahead? - 30 July 2021
Wells Fargo Economics & Financial Report / Aug 11, 2021
Despite a few misses on the headline numbers, economic data this week highlighted a theme of demand continuing to outstrip supply and ongoing slack in the labor market.
This Week's State Of The Economy - What Is Ahead? - 01 July 2022
Wells Fargo Economics & Financial Report / Jul 14, 2022
As with the Mets and Yankees when they ran into the Astros over the last couple days, consumers staying power is showing signs of running out as inflation persists and confidence moves sharply lower.
This Week's State Of The Economy - What Is Ahead? - 26August 2022
Wells Fargo Economics & Financial Report / Aug 29, 2022
I can understand how the opportunity to participate in lots of scintillating economic policy discussions could make fishing look exciting in comparison.
This Week's State Of The Economy - What Is Ahead? - 28 October 2022
Wells Fargo Economics & Financial Report / Oct 31, 2022
Headline GDP continues to send mixed signals on the direction of the U.S. economy. During Q3, real GDP rose at a 2.6% annualized rate, ending the recent string of quarterly declines in growth registered in the first half of 2022.
This Week's State Of The Economy - What Is Ahead? - 17 July 2020
Wells Fargo Economics & Financial Report / Jul 18, 2020
Two countervailing themes competed for attention this week in financial markets. The first is that for the most part, economic data continue to surprise to the upside and do not yet rule out prospects for that elusive V-shaped recovery.
