Recession-hit UK finally confronts its fiscal abyss: Eco Week

By on November 12, 2022 0

(Bloomberg) — Britain’s plan to repair its damaged public finances and market credibility will finally emerge this week following data showing an intensifying cost-of-living shock in a recession-hit economy. .

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Spending cuts and tax increases could feature prominently in the program that Chancellor of the Exchequer Jeremy Hunt will unveil on Thursday. He is expected to announce measures totaling at least £50bn ($59bn) to close a fiscal gap.

The challenge is compounded by ever-worsening economic pressure. A long recession is now likely underway, as signaled by gross domestic product data released last Friday, and inflation figures for October, due on Wednesday, will likely show the highest reading ever in the current energy crisis. . The median forecast is for consumer price growth to jump to 10.7%.

The choices made by Hunt and Prime Minister Rishi Sunak will determine how far Britain can weather this storm, and also move on from its remarkable financial market debacle of recent weeks.

A package of unfunded tax cuts unveiled by former Chancellor Kwasi Kwarteng and Prime Minister Liz Truss in September caused a loss of confidence in Britain’s economic framework that has become a parable for other countries to avoid.

The new government that took office after them has another two years to restore the perception of the economic competence of the ruling Conservative Party at a time when some voters are increasingly questioning the wisdom of its signature policy, leaving the European Union. The next general elections will take place in January 2025.

In the meantime, the Bank of England should continue to raise interest rates to control inflation. Clues to his intentions could emerge on Wednesday as Governor Andrew Bailey testifies in Parliament alongside three of his colleagues.

What Bloomberg Economics says:

“The BOE is unlikely to be comfortable easing off until services inflation shows signs of returning to its long-term average.”

–For a full analysis, click here

Elsewhere, reports that could show continued U.S. retail sales growth, accelerating Japanese inflation and the European Central Bank’s latest financial stability assessment will also draw investors’ attention in the coming days. .

Bloomberg’s New Economy Forum runs from Tuesday to Thursday, featuring Singapore’s Deputy Prime Minister Lawrence Wong, Singapore’s Chief Minister Tharman Shanmugaratnam, US Trade Representative Katherine Tai and CEOs including Standard’s Bill Winters Chartered, HSBC’s Noel Quinn, TikTok’s Shou Chew among keynote speakers and panelists.

Click here to see what happened last week and below is our summary of what else is happening in the global economy.

American economy

In the United States, retail sales figures will offer clues to the health of consumer demand at the start of the last quarter of the year. Economists forecast a solid increase in the value of October purchases, fueled by motor vehicle sales and indicating buoyant spending despite high inflation.

The data will help shape economists’ estimates of fourth-quarter economic growth following the Federal Reserve’s huge rate hikes. According to the Atlanta Fed’s GDPNow estimate, gross domestic product grew 4% annualized over the period, reflecting 4.2% growth in personal consumption.

Other reports this coming week include the Government Producer Price Index for October, which is expected to maintain momentum on a monthly basis. The figures follow the release of consumer price data that indicated inflationary pressures were starting to ease.

Reports on industrial production, housing starts and existing home sales are also available. Housing data will likely underscore the hit to demand and construction from rapidly rising borrowing costs this year.


China released its latest retail sales, industrial production, investment and employment data on Tuesday, with economists anticipating another lean month as Covid restrictions cap activity.

Japan’s post-pandemic recovery likely slowed in the third quarter as pent-up demand eased and a weak yen and rising import prices weighed on consumption and trade.

GDP figures released on Tuesday will likely be overshadowed by inflation figures later in the week, showing a further acceleration in price growth exacerbated by the falling currency.

Bank of Japan Governor Haruhiko Kuroda’s comments over the week will be closely watched for any signs of a change in his easing stance.

Minutes from the Reserve Bank of Australia’s November meeting will further flesh out the board’s thinking on the policy. That stance may need to be revisited if Wednesday’s payroll data surprises or Thursday’s employment numbers offer a shock.

On Thursday, the central banks of Indonesia and the Philippines are expected to continue their monetary tightening.

Europe, Middle East, Africa

Several eurozone policymakers will speak this week at events in the euro region and as far afield as Tokyo. Among the highlights will be ECB President Christine Lagarde, who is due to make two remarks in the coming days.

The semi-annual assessment of financial stability from ECB officials on Wednesday and the announcement of early repayments of long-term loans on Friday will also attract investors’ attention.

The data calendar is relatively light, with German investor confidence on Tuesday likely peaking at a time when the country is set to suffer a deeper recession than its neighbours.

Final readings of third-quarter GDP and October inflation for the euro zone will be released on Tuesday and Thursday, respectively.

In the Nordic region, economists predict that annual Swedish consumer price growth likely jumped another 11% in October. This data is expected on Tuesday, while Norwegian GDP on Friday is expected to show continued growth.

Looking south, Israel’s inflation data on Tuesday will be watched closely to see if a slowdown in price growth has continued into October. The Bank of Israel has anticipated rate hikes this year and may begin to slow the pace of hikes if inflation continues to weaken.

With the pace of consumer price increases exceeding forecasts by the National Bank of Rwanda, its monetary policy committee may be persuaded to raise rates for a third consecutive meeting on Tuesday.

On the same day, Nigerian inflation is expected to remain at more than double the 9% ceiling of the central bank’s target range for a fifth consecutive month, as the naira continues to plunge on the widely used black market and the worst decade-long floods drive up food prices.

Latin America

Brazil’s rough GDP figures for September are expected to show further recovery in the country’s services sector, although the monthly reading drops for a second month.

Chile’s third-quarter GDP report is expected to underscore the dramatic slowdown in the economy over the past year as the effect of pension withdrawals fades. Looking ahead, challenges abound, as persistent double-digit inflation leaves little room for the central bank to ease record high interest rates anytime soon.

Uruguay’s central bank will likely raise its benchmark rate for an 11th straight meeting in a tightening campaign that pushed borrowing costs up 625 basis points to 10.75%.

In Colombia, import and trade balance data for September may reflect some of the economy’s slowing demand after the former hit a record high in August and the latter posted an unprecedented deficit.

Look for the country’s third-quarter GDP report to show that output has slowed from the blistering pace seen in April-June, while still easily remaining the region’s hottest major economy.

Among the Group of 20 economies, only Turkey’s annual inflation of 85.51% exceeds Argentina’s of 83%. Data released Friday in Buenos Aires could see the two trade positions, but if not, most economists predict it will happen by the end of the year.

–With help from Andrew Atkinson, Vince Golle, Robert Jameson, Malcolm Scott, Monique Vanek and Sylvia Westall.

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