After Japan, Now The UK’s Economy Has Slipped In To Technical Recession

The recession is expected will be short lived with recovery expected in CY24, with inflation likely to moderate

Jahnavi Prabhakar,

Economist,

Bank of Baroda 

Mumbai, February 16, 2024: Softer than expected retail sales print in the US has fuelled bets of dovish outlook by Fed. As per the CME Fed watch tool, odds of rate cut in May’24 jumped up to 40%, for Jun’24 they were around 80%. On the other hand, fall in weekly jobless claims signalled strength in labour market. Investors will await PPI report for more cues. Separately, after Japan, now the UK’s economy has slipped in to technical recession. The economy shrank by 0.3% for Q4CY23 on a quarterly basis compared with contraction of (-) 0.1% in the Q3CY23. This was led by broad based decline across the sectors, services (-0.2%), production (-1%) and construction (-1.3%). Furthermore, weakness in labour market and persistently high inflation added to the contraction. However, analyst expect the recession will be short lived with recovery expected in CY24, with inflation likely to moderate.

• Global indices closed higher. US indices ended in green as hopes of a possible rate cut by Fed resurfaced after disappointing retail sales data (-0.8% from +0.4% in Dec’23). Nikkei surged by 1.2% and is on course to record an all-time high. Sensex (0.3%) continued to advance supported by gains in oil & gas and power stocks. It is trading higher today, in line with other Asian stocks.
• Except INR, other major currencies closed higher against the dollar, with EUR and JPY gaining the most. DXY fell by 0.4%, dragged by drop in treasury yields. INR ended flat, despite increase in international oil prices. It is trading a tad higher today, in line with other Asian currencies.

Global 10Y yields ended mixed. 10Y yields in US, Japan and India fell, while

they were up in UK and Germany. With sharper than expected decline in US

retail sales, hopes of rate cut by Fed in Jun’24 have firmed up. India’s 10Y yield

fell by 2bps, even as oil prices rose. Following global cues, it is trading further

lower today at 7.08%.

(The views expressed in this research note are personal views of the author(s) and do not necessarily reflect the views of Bank of Baroda. Nothing contained in this publication shall constitute or be deemed to constitute an offer to sell/ purchase or as an invitation or solicitation to do so for any securities of any entity.)