The Office for National Statistics (ONS) last week released its rolling three-month estimate for GDP. The November to January period saw the UK economy grow at 0.2%, the same as recorded in the final quarter of 2018. Month-on-month, a 0.4% contraction in December was followed by a strong 0.5% rebound in January, with construction activity in particular driving the change. Over the three months, services continue to be the primary contributor to growth with manufacturing and production lagging the overall economy. Furthermore, a slowing global economy has not supported the UK as it has done over the last couple of years, with demand for exports weakening. This is a trend seen globally.
US inflation data for February came in at 1.5%, lower than the 1.6% expected and beneath the 1.6% seen in January. This is the lowest inflation rate since September 2016, a period which was significantly impacted by the fall in the oil price. Likewise, the core inflation rate which strips out volatile elements, also fell and came in below expectations in February. This data will add important support to the Federal Reserve’s decision to back out of planned interest rate rises this year and will add to expectations that quantitative tightening will be moderated. Lower inflation will lessen the need for tighter monetary policy and will allow the Fed to be more accommodative. Lower inflation will also be good news for workers who will see an increase in their real rate of pay, which is continuing to rise.
Parliament Votes (again)
Although there was another round of Brexit voting in parliament last week, we are little closer to knowing what the ultimate outcome of Brexit will be. It is now likely that there will be a third attempt to get the Prime Ministers plan through and an increasing possibility of an extension to Article 50. In attempts to illustrate policy under a “no-deal” Brexit the government has revealed its plans to reduce tariffs on a wide range of imports in such a scenario. Although to some this looks like an attractive policy, there was a backlash by many business groups, and it appears the manoeuvre was designed to persuade more MP’s to vote for May’s deal and reject a no-deal. Given the outcome of the votes last week it appears that only some were persuaded.
|UK 10 Year Gilt Yield||1.19||1.21||0.02||1.68%|