Key events
Introduction: Bond fund giant Pimco warns of ‘hard landing’ for UK economy
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The ghost of a future recession is haunting the UK this morning, with less than a fortnight until the new year.
One of the world’s biggest active bond fund managers has dampened the festive mood, warning that the UK is at high risk of a serious economic downturn in 2024.
Daniel Ivascyn, chief investment officer at Pimco, is predicting the UK will suffer greater economic strain than the US economy next year, when both countries will be holding general elections.
Ivascyn told the Financial Times that higher interest rates are having more of an impact on British consumers than their American counterparts.
“In the case of the UK — a smaller, open economy, with a consumer that’s feeling the brunt of central bank policy far more than their US counterparts — you just have a higher probability of more significant economic deterioration.
“We do think there’s potentially more hard landing risks.”
Ivascyn also warns that Europe’s economy could also struggle in 2024, adding that both the UK and Europe risk “a more significant deterioration” than the US, whose economy had held up well in 2023. More here.
Both the US and UK central banks have left interest rates on hold in recent months – at 5.25% in the UK, and a 5.25-5.5% target range in the US.
Optimism has been growing in recent weeks that the US will pull off a tricky ‘hard landing’ – bringing down inflation without triggering a recession.
That would allow the Federal Reserve to ease policy in 2024, with the markets pricing in as many as six quarter-point cuts to US interest rates next year.
But the Bank of England continues to push back against market expectations that it might cut interest rates by over one percentage point next year.
Last week, accountancy and business advisory firm BDO reported that UK business confidence has fallen three months running, driven by gloom in the services sector. BDO’s optimism index fell to its weakest point since April, with rising wages forcing firms to cut back on hiring.
Worryingly, the UK economy shrank by 0.3% in October, suggesting it weakened towards the end of 2023.
On Friday, updated GDP data will show how the UK economy performed in July-September. It will probably confirm that GDP stagnated, but there is chatter that the data could be downgraded to show the economy shrinking in Q3.
Looking more widely, analysts at Oxford Economics predict that global GDP growth will slow to just 2.1% next year – a weak outcome even by post-global financial crisis standards.
They add:
However, it would still amount to a soft economic landing after the aggressive monetary policy tightening over the past couple of years.
Also coming up today
New eurozone inflation data is expected to confirm that consumer prices rose more slowly in November, to a 28-month low. The initial estimate was that the eurozone CPI rose by 2.4% over the last year, as inflation cooled.
In the UK parliament, the Business and Trade Committee is holding an evidence session examining the use of private equity in the retail sector. Asda co-owner Mohsin Issa will be among the witnesses.
The agenda
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10am GMT: Eurozone inflation report for November (final estimate)
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10am GMT: Business and Trade Committee session on use of private equity in retail sector
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11am GMT: CBI Industrial Trends survey of UK manufacturing
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1pm GMT: Bank of England deputy governor Sarah Breeden: Speech at the IIF talking policy series
