After falling in October, Gross Domestic Product (GDP) in the UK rose by 0.3% in November, better than most economists expected and powered by the services sector.
The immediate effect on the pound has been negligible, but GBP/EUR are GBP/USD are close to their highest points this month. British chancellor Jeremy Hunt pointed out that growth was despite efforts to slow inflation via higher interest rates, and he credited his tax cuts for GDP’s revival: “our tax cuts for businesses and workers put the UK in a strong position for growth into the future.”
The big news from yesterday was the surprise rise in the headline rate of US inflation back up to 3.4%. While core inflation continued to fall, the markets saw the likelihood of interest rates rising again and the dollar strengthened briefly.
Federal Reserve policymaker Thomas Barkin said he was looking for more indication that inflation is heading to 2% before he would countenance rate cuts, and this was echoed by another rate-setter, Loretta Mester, who said of rate cuts: “March is probably too early in my estimation.”
In the UK, meanwhile, three leading financial institutions predicted a Bank of England rate cut as early as April. Analysts at Oxford Economics, Investec and Deutsche Bank suggest that inflation will fall below 2% within four months.
The crisis in global trade arising from missile strikes on Red Sea shipping continues to reverberate. Yesterday Iranian-backed commandos seized an oil tanker, and US and UK forces struck Houthi rebel miliary facilities in response. IfW Kiel, a German economic institute, said that container transport in the Red Sea was down 60%. They added that rerouting ships around Africa was sending the cost of a 40-foot container from China to Northern Europe up from $1,500 to $4,000.
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