Economic Update
Stay informed about the latest economic developments in the UK, Eurozone and the US. Get insights into key indicators and currency trends in this comprehensive economic update blog.
Lower than expected GDP rise, but cause for optimism
6 minute read30 September 2024
GBP
The UK’s GDP rose by 0.5% in the second quarter versus the first quarter, and increased by 0.7% compared with last year’s Q2. While these figures were slightly below the expected level, the economic outlook has improved considerably since the start of the year, mainly because inflation is back on target, interest rates are starting to come down and there is greater political stability after the election.
We also saw the Nationwide House Price Index rise 0.7% in September, giving some cause for optimism to homeowners. Nationwide reported that annual house price growth has risen by 3.2%, and house prices are at their highest since November 2022. The building society said that terraced homes were driving the increase.
These positive readings could further strengthen the pound, even after a strong run last week. The Bank of England has said there are encouraging signs that its first interest rate cut in August, together with the expectation of more cuts and lower inflation, will boost growth later this year.
EUR
Austria’s far-right Freedom Party have won the most votes in the country’s general election. This continues the trend of far-right parties gaining popularity throughout Europe, and increases the potential instability of the European Union bloc.
The Eurosceptic and Russia-friendly FPÖ have won 28.8% of the vote, ahead of the OVP on 26.3%. As a result, the party will have the most seats in parliament, but it falls far short of establishing an overall majority. Since the Freedom Party and its leader, 55-year-old Herbert Kickl, will find it extremely difficult to gain support from the other main parties to form a coalition, it remains unlikely they will play a part in governing this term. Whether or not Kickl succeeds, Analysts have said that Austria is now in uncharted territory.
Eurozone CPI inflation figures will be released by Eurostat on Tuesday at 10am. Inflation in the Eurozone was 2.2% in the year to August, down from 2.6% in the year to July. In the year to August 2023, it stood at 5.9%. According to Eurostat, the indicators show a generally positive situation regarding the economic situation in both the euro area and the EU. This includes GDP growth, an increase or stability in production in construction, an increase in retail trade sales, a falling inflation rate, and a falling or stable unemployment rate.
Federal Reserve Chair, Jerome Powell, is scheduled to speak this evening in Nashville, Tennessee. This will be his first major speech since 18th September, when the Fed’s policy committee announced the decision to cut its benchmark interest rate by half a percentage point for the first time since 2020. In his speech, Jerome Powell is expected to elaborate on the 18th September rate cut decision, and on possible plans for further reductions in borrowing costs over the rest of this year and into the next. The September interest rate cut weakened the USD, and news of more cuts could cause volatility. The financial market is looking for clarity on how fast rate cuts will be implemented, while investors are uncertain about how much the Fed will cut rates at its next meeting in November. After keeping interest rates high to fight off inflation, the Fed hopes that cutting them will boost the American economy and prevent a significant rise in unemployment. Non-farm payrolls, which are key economic indicators of the number of people employed in the United States, are due to be released on Friday at 1:30pm. Although an increase would be a welcome indication that the economy is growing, it could also result in a rise in inflation. Watch this space. USD
This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.
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