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Voices of Moneyfarm: UK GDP, US CPI & the Fed holds rates

Moneyfarm CIO Richard Flax spoke to the media this week as key macro data was published in both the UK and US.

What can the latest growth and inflation data tell us about the health of the British and American economies? Richard gives his view.

Has UK productivity ‘turned a corner’? Perhaps not…

“The UK Gross Domestic Product (GDP) remained unchanged month-on-month in April, aligning with the consensus forecast by analysts. This follows a growth of 0.4% in March. According to the latest figures published by the Office for National Statistics (ONS), the service sector experienced a 0.2% growth in April, marking its fourth consecutive monthly increase. However, both production and construction output weakened during this period, declining by 0.9% and 1.4%, respectively.

While the UK does not appear poised to re-enter recession, these figures hardly endorse Prime Minister Rishi Sunak’s claim that the ‘economy has turned a corner.’ In looking to apportion blame for these underwhelming figures, it seems that fingers can be pointed at the Great British weather. After one of the wettest Aprils on record, it’s no surprise that sectors such as retail, hospitality, and construction struggled, though improved weather in May means there is hope for a boost later down the road.”

Wednesday’s US CPI data should be received well by both the White House and Fed

“In a welcome sign, inflation in the US continues to slow and is seemingly loosening its grip on the US economy as CPI data revealed that consumer prices were flat month-on-month in May, having risen by 0.3% in April. On annualised terms, inflation slowed to 3.3% from 3.4% in the year to April – a step better than the forecasted 3.4%.  

 

The decline in inflation was largely attributed to cheaper cost of fuel – with the gasoline index declining by 3.6% over the month, while the energy index fell by 2%.

The food away from home index rose 0.4 percent over the month, while the food at home index was unchanged.

Core inflation, which strips out food and energy, rose 0.2% in May, clocking 3.4% over the last year – which also came out lower than April’s data.

Today’s inflation data should be received well by both the White House, which is in election mode, and by the Federal Reserve, which is sizing up rate cuts in the imminent future.   

As expected, US treasury yields saw a decline immediately after the soft data, expecting the Fed to act soon.”

Fed opts to keeps rates steady at 5.5% 

“The decision by the Federal Reserve to hold interest rates steady at 5.50% for the seventh time, reflects the continued nuanced approach undertaken by the central bank, as it remains cautious on the inflationary trends. The Fed’s economic forecasts now see stickier inflation in 2024 and a slightly higher unemployment rate in 2025.

“Policymakers welcomed a rapid deceleration in price increases in 2023 but have become more cautious after progress on inflation stalled earlier this year. Policymakers now expect that they will lower the policy rate by only 25 bps this year”.

Richard Flax: Richard is the Chief Investment Officer at Moneyfarm. He joined the company in 2016. He is responsible for all aspects of portfolio management and portfolio construction. Prior to joining Moneyfarm, Richard worked in London as an equity analyst and portfolio manager at PIMCO and Goldman Sachs Asset Management, and as a fixed-income analyst at Fleming Asset Management. Richard began his career in finance in the mid-1990s in the global economics team at Morgan Stanley in New York. He has a BA from Cambridge University in History, an MA from Johns Hopkins University in International Relations and Economics, and an MBA from Columbia University Graduate School of Business. He is a CFA charterholder.

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