Whisper it, but could the UK be on the up?

article feature image

Cut to the chase: the latest US inflation figures would indicate the inflation dragon has been slain. For the second quarter in succession, core prices rose at an annualised rate of exactly 2%, as we are more than aware of the Fed’s stated target. Economic growth, according to the latest GDP report, would suggest the US economy is in rude health, with an annualised growth rate of 3.3%. So what is the Fed’s plan next week? Do they look at prices and lead the market to believe that a cut is appropriate in the near months, possibly risk another price spike, or leave well alone and increase the risk of a hard landing further down the line?  Janet Yellen, a previous Fed Chair and now Treasury Secretary, expressed the view this week that the Covid-inspired inflation rush is now over. That lady appears ready to pivot.

Christine Lagarde, chairing yesterday’s monthly ECB meeting, appeared to rule out the near-term possibility the ECB will start easing monetary policy despite a pretty weak euro area economy and, as is the case in the US, inflation running at an annualised rate of around 2%, if not slightly below it. Under promise and over deliver, perhaps, is what the market is starting to sense as euro area bond yields fell across the curve after yesterday’s meeting. The very same could happen next week as the Fed meets.

It does not take much to bash the state of the UK economy, but are things on the up? Consumer confidence rose to a two-year high this week, probably helped as wage growth now exceeds price growth. We will likely get some form of tax cuts in the March budget; the Bank of England should likewise cut rates at some point this year. I read in one of the weekend papers that Land Securities thinks now is a good time to raise capital to invest in the UK economy. Both manufacturing and services PMI’s have been ticking higher in the past few months. The services index is now trading comfortably above 50, which indicates expansion in the service sector, a much larger contributor to economic growth than manufacturing these days. According to some data yesterday, for the first time in a decade, we produced over a million cars in one year in 2023. Stocks in the UK may be dull, as many are old economy, but they are cheap. It is also true that, as someone pointed out to me the other day, the UK FTSE 100 is a very non-ESG index, full of energy, mining, tobacco, banks, and beverage stocks.