The Bank of England again held the UK interest rate at 5.25% at the November meeting of the Monetary Policy Committee (MPC). The rate at which prices are increasing, as measured by UK Consumer Price Inflation (CPI), reduced to 4.6% for October, a sharp drop from the September figure of 6.7%.
The fall was largely due to a reduction in energy costs. Inflation remains well above the Bank’s target of 2%, but is now less than half of its recent peak of 11.1% in October 2022. The Bank is still concerned about the “potential persistence” of inflation, and has not ruled out further increases to the interest rate.
The Office of Budget Responsibility (OBR) expects weak growth for the UK economy of 0.6% this year, 0.7% in 2024 and 1.4% in 2025.
In the US, CPI reduced to 3.2% in October, easing concerns of further interest rate rises. The key Federal Reserve rate was again held at a range of 5.25% to 5.5% in its latest announcement on 1 November.
Revised figures showed that the US economy grew by 5.2% in the third quarter, its fastest pace of growth in almost two years.
Inflation in the eurozone fell back to 2.4% in November, down from 2.9% in October. Coupled with an expected recession in Germany, this has fuelled speculation around interest rate cuts in 2024. The key deposit European Central Bank (ECB) interest rate is currently 4%.
In China, the Government has so far resisted calls for further stimulus to combat a prolonged property slowdown after several developers defaulted. The Government has cut key lending rates and issued new bonds to support growth, but has stopped short of any major bailouts.
Unlike the vast majority of the major economies, deflation is currently an issue in China, with a CPI figure of -0.5% for November meaning that prices have fallen since November 2022.
Global stock markets have largely recovered from a dip in October, due to the escalation of the conflict in the Middle East. The FTSE100 currently stands at around its opening level for 2023, with the FTSE250 down slightly year to date. Stock markets in the US have faired much better, with the Dow Jones Industrial Average up around 9% year to date, the S&P500 gaining around 20% and the technology-focused NASDAQ Composite gaining over 35%.
Closer to home, data from HMRC showed that house sales in Northern Ireland were down by 18% in the first nine months of 2023. Sales have been impacted as rising interest rates have made mortgages more expensive.
However, a 2022 comparison of average household incomes to average house prices by the Office of National Statistics (ONS), carried out in 2022, showed that Northern Ireland is the region of the UK where it is most affordable to buy a house. It found that in Northern Ireland, the average house cost 5.1 times average annual incomes. This compared to a ratio of 5.3 times in Scotland,6.4 in Wales and 8.4 in England.
In the Republic of Ireland, the economy is in a technical recession, following a fourth successive quarter of negative growth in Gross Domestic Product (GDP). However, GDP is not considered an accurate reflection of the Irish economy due to the distortion from multinational corporations. Modified Domestic Demand (MDD), which better reflects underlying domestic economic activity in Ireland, is still forecast to expand at a modest pace during 2023, 2024 and 2025.
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