Britain’s plan to repair its damaged public finances and market credibility will finally emerge this week in the wake of data showing an intensifying cost-of-living shock in a recession-stricken economy.
Spending cuts and tax increases may feature heavily in the programme that Chancellor of the Exchequer Jeremy Hunt will unveil on Thursday. He is expected to announce measures totalling at least 50 billion pounds ($59 billion) to bridge a budget chasm.
Compounding the challenge is an ever-worsening economic squeeze. A lengthy recession is now likely under way, as signalled by gross domestic product data released last Friday, and inflation numbers for October due on Wednesday will probably show the highest outcome yet seen in the current energy crisis. The median forecast is for a jump in consumer-price growth to 10.7 per cent.
The choices taken by Hunt and Prime Minister Rishi Sunak will determine how far Britain can weather that storm, and also move on from its remarkable financial-market debacle of recent weeks.
A package of unfunded tax cuts unveiled by former Chancellor Kwasi Kwarteng and then-premier Liz Truss in September prompted a loss of confidence in the UK economic framework that has become a parable for other countries to avoid.
The new government that took office after them has two years left to restore perceptions of the ruling Conservative Party’s economic competence at a time when some voters are increasingly questioning the wisdom of its signature policy, exiting the European Union. The next general election is due by January 2025.
In the meantime, the Bank of England is likely to keep raising interest rates to bring inflation under control. Clues on its intentions may emerge on Wednesday as Governor Andrew Bailey testifies in Parliament alongside three of his colleagues.
Elsewhere, reports that may show continuing US retail-sales growth, accelerating Japanese inflation, and the European Central Bank’s latest financial-stability assessment will also focus investors in the coming days.
In the US, retail sales figures will offer clues on the health of consumer demand entering the final quarter of the year. Economists project a solid increase in the value of October purchases, powered by motor vehicle sales and indicating sustained spending despite high inflation.
The data will help shape economists’ estimates of fourth-quarter economic growth in the wake of huge rate increases from the Federal Reserve. The Atlanta Fed’s GDPNow estimate has gross domestic product rising an annualised 4 per cent during the period, reflecting 4.2 per cent growth in personal consumption.
Other reports this coming week include the government’s October producer price index, which is forecast to maintain momentum on a monthly basis. The figures follow the release of consumer price data that indicated inflationary pressures are beginning to moderate.
Reports on industrial production, housing starts and existing-home sales are also on tap. The housing data will probably underscore the hit to demand and construction from this year’s rapid rise in borrowing costs.
China releases its latest retail sales, industrial production, investment and employment data on Tuesday, with economists anticipating another lean month as Covid restrictions cap activity.
Japan’s post-pandemic recovery likely slowed in the third quarter as pent-up demand eased and a weak yen and higher import prices weighed on consumption and trade.
The GDP figures out Tuesday will probably be overshadowed by inflation figures later in the week showing a further acceleration in price growth exacerbated by the slide in the currency.
Bank of Japan Governor Haruhiko Kuroda’s comments during the week will be closely scrutinised for any hint of change in his staunch easing position.
Minutes from the Reserve Bank of Australia’s November meeting will further flesh out the board’s thinking on policy.
That stance might need revisiting if wage data on Wednesday surprises or jobs figures on Thursday offer a shock.
On Thursday, the central banks of Indonesia and the Philippines are expected to continue their monetary tightening.
Europe, Middle East, Africa
Several euro-zone policy makers will speak this week at events around the euro region and as far away as Tokyo.
Among the highlights will be ECB President Christine Lagarde, who is scheduled to make remarks twice in coming days.
ECB officials’ half-yearly assessment of financial stability, on Wednesday, and an announcement on early repayments of long-term loans, on Friday, will also draw investors’ attention.
The calendar for data is relatively light, with German investor confidence on Tuesday a likely highlight at a time when the country is seen enduring a deeper recession than its neighbours.
Final readings of third-quarter GDP and October inflation for the euro area will be released on Tuesday and Thursday respectively.