UK economic data releases took a back seat in what was Budget week. In terms of the predictions for inflation and economic growth announced, it was pleasing to hear that the Office for Budget Responsibility (OBR) now forecast that the economy will grow by 0.8% in 2024, up from the previous forecast of 0.7%. Falling interest rates and the recovery in real household incomes are expected to be key drivers. They also forecast that growth could be around 2% in 2025. As always there comes a caveat, whereby they state that risks to their forecasts remain elevated due to uncertainty over the outlook for productivity.

Better news on the inflation front, where the OBR now forecast that it will fall to the 2% forecast over the next couple of months, and average 2.2% for 2024. It is then forecast to average 1.5% in 2025, below target, before returning to the latter in forthcoming years. These forecasts will perhaps add fuel to the call for the Bank of England to cut interest rates and would clearly suggest that there appears scope. With the US Federal Reserve appearing resolute however, it will be interesting to see if Andrew Bailey and Co. are willing to make the first move.

Reinforcing the current ‘on hold’ stance in the US was Fed Chair Powell’s latest testimony to Congress. Here he suggested that it will likely prove appropriate for them to start cutting interest rates this year. He once again reiterated, however, that this will only occur when there is greater confidence that a 2% inflation rate looks sustainable. It would therefore appear that they remain, very much, data dependent. The Fed are being very clear that they don’t appear ready to cut just yet, will they be as transparent when they are ready to?

Perhaps providing some leeway for the US to cut was the release of slightly weaker than expected ISM Services PMI data. At a reading of 52.6 for February, this was lower than the previous months reading of 53.4 and behind the consensus forecast of 53. All the same, a figure above 50 still indicates that the sector remains in expansionary territory, albeit at a slightly slower pace than previously. The sector has now been in expansion since the end of 2022.

Looking deeper, the view was mixed. A reading of 48 suggests contraction for labour in the sector, one perhaps the US Federal Reserve will be keen to keep an eye on. On the other hand, new orders picked up pace, along with business activity, suggesting that the demand remains there.

Finally, it was time for US non-farm payrolls. They seem to come round so quick. The figures showed that 275,000 jobs were added in February, ahead of consensus forecast which was for 200,000. The January figure did see a sharp downward revision from 353,000 to 229,000 jobs added. Mixed figures for the US Federal Reserve to digest.

Last but not least the European Central Bank met and unsurprisingly kept interest rates on hold. Their focus remains on trying to balance the risk of recession versus elevated inflationary pressures. They did, however, lower their prediction for inflation, expecting it to average 2.3% in 2024 compared to the previous estimate of 2.7%, so at least it would appear it is moving in the right direction.

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