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Market Update - March 2024

The latest commentary on the UK economy, mortgage and savings markets.

  • GDP contracts for two consecutive periods, putting the UK into a technical recession as growth remains weak
  • Mortgage approvals rebounds in January for a strong start to 2024
  • Household savings balances fall in January as households pay down Christmas debt
     

UK ECONOMY SLIPS INTO A TECHNICAL RECESSION, BUT OUTLOOK IS POSITIVE


1.    UK GDP was estimated to have fallen by 0.3% in the final quarter of 2023 with falls in all three main sectors - services, construction and production. This follows a 0.1% fall in the third quarter putting the economy into a technical recession. The Governor of the Bank of England, Andrew Bailey, has warned against putting too much weight on these figures, and like many others, expects this recession to be short and shallow. In fact many see the economy recovering in 2024, after growing by just 0.1% in 2023 which was the weakest change in real GDP since the financial crisis in 2009 (excluding the year pandemic year of 2020). Yet regardless of the technical definitions, UK growth has been weak for a prolonged period.


2.    Spending has been supported by households whose wages has been growing strongly. In October to December 2023 regular wages grew by a 5.8% compared to the same period a year before. Once adjusted for CPI inflation, wages were up by 1.6%. The ONS point out that this growth rate is calculated on a base period just before pay rises were given to help with the cost of living crisis. Looking at shorter-term trends, nominal total pay growth is just 2.2%, much weaker than the 5.8% headline rate.


3.    Meanwhile the unemployment rate fell to 3.8% in Q4 2024 though the number of job vacancies fell for the 19th consecutive period in November 2023 to January 2024. There are now 209,000 fewer vacancies compared to a year before. The falling trend in wage growth and vacancies signals that the labour market is less tight, and is heading in the right direction to facilitate the loosening of monetary policy. However wage growth is still high by historical standards, and there are still 131,000 more vacancies compared to the pre-pandemic level in March 2020. 


4.    In a recent speech by Swati Dhingra, the only member of the MPC to vote for a cut in rates at the February meeting, explained her rationale for this vote. She explains that producer prices, which fell significantly last year, provide a key indicator for gauging future inflationary pressures, and therefore expects the path for CPI to continue downwards. She also says the outlook for demand remains weak and less resilient than previously assumed which further diminishes the likelihood of sustained inflationary pressures, and believes that overall price developments strongly signal that inflation is already on a path of sustainably meeting the Bank’s 2.0% over the medium term. However, Catherine L Mann, voted to increase Bank Rate in February, in a finely-balanced decision, as she saw spending growing which could lead to inflation becoming embedded. Financial markets are currently pricing in a 25 basis point rate cut by around June 2024, and a further one or two 25bps cuts by the end of the year. 
 

You can download the full market update here which includes further analysis of the mortgage and savings markets and a range of charts. You will need to be logged in as a BSA Member or Associate Member to access this page.

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