UK economy to enter recession in all but name

UK economy to enter recession in all but name
Fresh gross domestic product (GDP) numbers released on Friday will top London investors’ minds in a week that sees Wall Street banking giants kick off US earnings season (Photo by Dan Kitwood/Getty Images)

The UK economy is set to enter a recession in all but name after official figures out later this week will likely reveal output slumped again in November.

Fresh gross domestic product (GDP) numbers, set to be released on Friday, will top London investors’ minds in a week that sees Wall Street banking giants kick off US earnings season.

Output is on course to swing back from a 0.5 per cent rise in October, which was artificially boosted by the lost working day in September to mark The Queen’s funeral, to a loss.

Soaring prices and business costs have continued to hit spending, weighing on the UK economy.

“We think that GDP is due a fall bearing in mind the weaker surveys and higher inflation, and as such forecast a 0.3 per cent m-o-m drop in November,” analysts at investment bank Nomura said.

Timelier indicators such as the purchasing managers’ index (PMI) show the services, construction and manufacturing sectors all contracted in December, signalling the country is in a recession right now.

On the corporate front, US banking titans will launch one of the closest watch earning seasons ever, with investors keen to see whether the Federal Reserve’s series of aggressive rate hikes to tame inflation are whacking profits.

JP Morgan, Bank of America, Wells Fargo and Citigroup update investors on Friday.

Lenders have received a boost from the Fed’s rate rises, which have been the most severe since the 1980s. Banks can charge more for loans when base rates rise.

However, investors are keen to see whether consumer spending is holding up amid higher living costs for clues on whether the US will tip into recession.

Card transaction volumes tracked by more consumer-focused banks, such as Wells Fargo, will be parsed over for indications on the strength of household demand.

Experts are divided over whether the US can escape a technical recession – two consecutive quarters of contraction – after the Fed’s rate hike cycle.

City traders will also be keeping tabs on how pound sterling performs after it kissed a November low against the US dollar last week. The currency rallied at the end of the week.

That drop helped fuel a rally on London’s FTSE 100 index, which climbed 2.49 per cent over the last week to close at its highest level since the summer of 2019.

FTSE 100 ended last week at 2019 levels

London's FTSE 100 ended last week at a near four year high despite recession fears.
Source: TradingView

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