What will the UK’s Q3 growth figures reveal about consumer spending power?
The UK is expected to confirm that the economy contracted by 0.2 per cent between the second and the third quarter, marking the start of what many economists expect to be a prolonged recession.
The figures, published on Thursday by the Office for National Statistics, will contain further details on the economy as well as the current account.
Ellie Henderson, an economist at Investec, expects the data to show further falls in real household disposable income as wage increases fail to match inflation, “a matter which has prompted much of the industrial action across the country as of late”.
She also expects a further fall in the household saving ratio from 7.6 per cent in the second quarter. That is because “household budgets are becoming increasingly squeezed and considering the cost of living crisis, a greater proportion of household income is being diverted to cover essential consumption”, she explained.
The UK current account deficit is expected to have narrowed, with economists polled by Reuters forecasting a gap of £20.1 bn in the third quarter, down from £33.8bn, or 5.5 per cent of gross domestic product, in the second quarter. This would be a further narrowing from the £43.9bn deficit in the first quarter when it was the largest since records began in 1955.
The current account balance is the difference between how much the UK exports and imports, plus its net investment and remissions.
Despite the narrowing, the country is headed towards a record shortfall on its external account this year, surpassing the existing high of £109.7bn in 2016, according to Investec. Valentina Romei
Will US consumer confidence weaken again?
Softening US consumer spending has been critical to the Federal Reserve’s efforts to tame inflation. In recent months economic data has suggested that the Fed’s policy of aggressively raising interest rates is beginning to work.
The latest sign, on Wednesday, will be the Conference Board consumer confidence index. The consensus of analysts estimates compiled by Refinitiv expects a reading of 100.8, a slight improvement on last month’s 100.2, which was the lowest level since July. A reading above 100 indicates consumers’ confidence towards the future economic situation.
In December, other consumer-sensitive data has also hinted that confidence is dwindling. Last week US consumer price inflation eased more than expected in November to its lowest level in almost a year, while US retail sales fell more than expected, with a 0.6 per cent monthly fall marking the biggest monthly decrease since December 2021.
“The economy is losing quite a bit of momentum,” said Neil Shearing, chief economist at Capital Economics, adding: “We forecast 1 per cent growth for quarter four.”
Federal Reserve officials have said controlling inflation will require lower growth and higher unemployment, but have been hesitant to predict a recession. Martha Muir and Philip Stafford
What will Germany’s business confidence survey reveal about the health of the economy?
German businesses have had plenty to worry about recently, including the risk of gas shortages and recession. Their mood may be briefly lifted when the Ifo Institute publishes the results of its benchmark survey of 9,000 companies on Monday.
The Ifo business climate index is expected to rise from 86.3 in November to 87.4 in December. If so, it would extend the slight brightening of prospects for the German economy in recent weeks, after the country was able to fill its gas storage facilities surprisingly quickly and overall output continued to grow more than expected in the third quarter.
The Ifo upgraded its forecast for the German economy last week, predicting it would contract 0.1 per cent next year, compared with its previous forecast in September for it to shrink 0.3 per cent.
An unusually cold winter could, however, still revive fears of energy shortages among the businesses surveyed. “A cold snap has gripped Europe, gas inventories are falling, and wholesale energy prices have snapped back,” said Claus Vistesen, an economist at Pantheon Macroeconomics. “If this continues into the first quarter, fears of energy rationing, either voluntary or forced, will return.” Martin Arnold
