What will UK growth data reveal about consumer spending power?

What will UK third quarter growth figures reveal about consumer spending power?

Britain is expected to confirm that its economy shrank by 0.2 percent between the second and third quarters, marking the start of what many economists expect will be a prolonged recession.

The figures, published on Thursday by the Office for National Statistics, will include further details on the economy as well as the current account balance.

Ellie Henderson, an economist at Investec, expects the data to show a further fall in household real disposable income as wage rises fail to keep pace with inflation, “an issue that has fueled much of the industrial action across the country recently”.

She also expects a further fall in the household savings rate from 7.6 per cent in the second quarter. This is because “household budgets are increasingly under pressure and in view of the cost of living crisis, a greater proportion of household income is being redirected to cover necessary consumption”, she explained.

Britain’s current account deficit is expected to have narrowed, and economists polled by Reuters forecast a gap of 20.1 billion pounds in the third quarter, down from 33.8 billion pounds, or 5.5 percent of gross domestic product, in the second quarter. This would be a further narrowing from the £43.9 billion deficit in the first quarter, when it was the biggest since records began in 1955.

The current account balance is the difference between how much the UK exports and imports, plus net investment and remittances.

Despite the tightening, the country is on track for a record deficit on its external account this year, surpassing the current peak of £109.7 billion in 2016, according to Investec. Valentina Romei

Will US consumer confidence weaken again?

Softening US consumer spending has been crucial to the Federal Reserve’s efforts to curb inflation. In recent months, economic data has suggested that the Fed’s policy of aggressive rate hikes is starting to work.

The latest sign, on Wednesday, will be the Conference Board’s consumer confidence index. The consensus of analyst estimates compiled by Refinitiv expects a reading of 100.8, a slight improvement from last month’s 100.2, which was the lowest level since July. A reading above 100 indicates consumer confidence in the future economic situation.

In December, other consumer-sensitive data also suggested that confidence is declining. Last week, U.S. consumer price growth fell more than expected in November to the lowest level in nearly a year, while U.S. retail sales fell more than expected, with a monthly drop of 0.6 percent, marking the biggest monthly decline since December 2021.

“The economy is losing quite a bit of momentum,” said Neil Shearing, chief economist at Capital Economics, adding: “We forecast 1 percent growth for the fourth quarter.”

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 companies have had a lot 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 faintly bright outlook for the German economy in recent weeks, after the country was able to fill its gas storages surprisingly quickly and overall output continued to grow more than expected in the third quarter.

Ifo upgraded its forecast for the German economy last week, predicting it would shrink 0.1 percent next year, compared with its previous forecast in September to shrink 0.3 percent.

An unusually cold winter may nevertheless revive fears of energy shortages among the businesses surveyed. “A cold fire has gripped Europe, gas stocks are falling, and wholesale energy prices have fallen back,” said Claus Vistesen, economist at Pantheon Macroeconomics. “If this continues into the first quarter, fears of energy rationing, either voluntary or forced, will return.” Martin Arnold

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