UK Growth

This morning figures from the ONS indicated that UK GDP grew 0.2% on a monthly basis, meeting market forecasts and marking an increase from the 0% growth recorded over August.

The economic expansion over August was led by a rise in output from the UK’s services sector which was itself assisted by growth in accounting and auditing, legal services, and scientific R&D.

Production output rose 0.5% in August, seeing a rebound from a 0.7% drop recorded in July as construction output grew 0.4%, following an unrevised fall of 0.4%.

This morning’s monthly print follows the 0.6% quarterly growth recorded over Q2. This represented the second consecutive quarter of relatively robust growth, indicative of how UK economic output may have turned a corner from the relatively stagnant growth seen over H2 2023. The data also indicates that the UK economy is now 2.3% larger than its pre-pandemic size.

With this morning’s figures marking the last GDP print before the Autumn Statement, No.11 will be closely analysing the data as they look for ways to revive growth.

Yesterday afternoon, the latest inflation print from the US indicated that the consumer price index (annualised) eased 10bps from August’s figure to 2.4%.

This marks the sixth consecutive month where the rate of inflation has fallen and represents the lowest level of inflation since February 2021. This came as gasoline prices dropped 5.3% over the course of the year, in what will be the last inflation print before the US electorate heads to the polls.

While easing inflation will serve as positive sign for policy makers in their battle to bring inflation back to the Fed’s 2% target, the print nonetheless marginally surpassed expectations.

On a monthly basis, prices rose 0.2%, beating expectations of a 0.1% print.

This came as the index for shelter rose 0.2 percent in September alongside food priced which increased 0.4%. These two components were cited as being the main drivers of inflationary pressure, with the Bureau of Labor Statistics stating that these “two indexes contributed over 75 percent of the monthly all items increase.”

Yesterday’s print saw markets slightly downwardly revise expectations of a 25bps cut at the next FOMC on 7 November. For example, money markets are now implying that there is around a 79% chance of a 25bps cut, up around 5 percentage points from Wednesday.

Following the print, US equities closed lower with the S&P 500 and Dow Jones both dropping 0.4%, as the Nasdaq eased 0.2%.

This morning, German inflation came in line with expectations with annualised CPI hitting 1.6% and monthly CPI coming in at 0%. This came as Germany’s monthly and annual Harmonized Index of Consumer Prices came in at -0.1% and 1.8%, respectively.

More broadly, the ECB forecast that headline inflation (annualised CPI) will average 2.5% over 2024, 2.2% during 2025, and 1.9% in 2026. In the nearer term, policy makers warned that inflation could rise from its current 1.8% level given that previous sharp falls in energy prices will drop out of the annual rates.