15 February 2024
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UK inflation slower than predicted

Daily Outlook - February 15 2024

By Daniel Richards

Headline CPI inflation in the UK was steady at 4.0% y/y in January, coming in lower than the predicted 4.1%, as prices fell 0.6% m/m, compared with the predicted 0.3% slowdown. Core inflation was also steady at 5.2% y/y. Services inflation was still high at 6.5%, however, up from 6.4% in December. The lower than anticipated inflation print is encouraging, but BoE MPC members will likely be looking for greater confirmation of the disinflationary trend before committing to looser policy, and board members have been cautioning recently against too rapid cutting. GDP data due today is expected to confirm that the UK was in a technical recession at the close of last year after the initial flat growth for Q3 was revised to a 0.1% contraction, which is the forecast for Q4’s print.

Japan reported GDP growth of -0.1% q/q in Q4, missing the predicted 0.2% growth. This put Japan in technical recession in the second half last year as both households and businesses pared back spending, although Japan did expand 1.9% for the year. Along with the depreciation of the yen, the sluggish growth in Japan’s GDP last year made it slip from the world’s third-largest economy to fourth in nominal terms, coming in below Germany even as it saw a contraction last year. The surprise contraction in the fourth quarter will complicate the BoJ’s plans to implement historic rate hikes this year, potentially seeing further pressure on the yen as a result.

Saudi Arabia has announced its 2023 budget figures, which showed a headline deficit of SAR 80.9bn (USD 21.6bn), or 2.1% of GDP. This is moderately wider than the 1.9% deficit we had forecast. Ongoing investment amid lower revenues weighed on the balance as oil production and prices fell from the previous year, when a 2.5% of GDP surplus was recorded. In 2024 we forecast that ongoing investment while oil production curbs remain in place will see the deficit widen further, to around 4.5% of GDP.

Today’s Economic Data and Events

11:00 UK GDP growth, Q4, % q/q. Forecast: -0.1%

17:30 US retail sales, January, % m/m. Forecast: -0.2%

17:30 US initial jobless claims, week to February 10. Forecast: 220,000

18:15 US industrial production, January, % m/m. Forecast: 0.2%

Fixed Income

  • Yields on USTs fell back as the dust settled on the previous day’s upside inflation surprise. The yield on the 10yr dropped 6bps to 4.2554%, while the 2yr fell 8bps to 4.5778%.
  • In the UK, the downside surprise on inflation saw gilts drop sharply, and the 10yr yield fell 11bps to 4.044% while the 2yr dropped 14bps to 4.575%.


  • The dollar lost some of its gains over the start of the week yesterday, with the DXY falling 0.2% against its basket of peers.
  • Almost every major climbed against the greenback, with EUR adding 0.2% to 1.0727 and JPY also gaining 0.2% to 150.58.
  • An outlier was GBP, where a lower than predicted inflation print raised bets on earlier rate cuts, and sterling fell 0.2% on the day to 1.2566.


  • Chinese markets were positive as they returned from the extended holiday with the Shanghai Composite closing up 1.3% and the Hang Seng 0.8%. Elsewhere in Asia the Nikkei gave up some of its recent gains as it closed down 0.7%.
  • In Europe, the UK’s FTSE 100 was bolstered by a cheaper pound and the index closed up 0.8%. There were also gains on the continent as the DAX closed up 0.4%. In the US, some of the previous days losses were recouped, and the S&P 500 closed up 1.0% and the NASDAQ 1.3%.
  • Locally, the DFM added 0.1% and the ADX 0.5%.


  • There was further data confirming a build in US inventories released yesterday, which weighed on oil prices. Data from the EIA showed a buildup of crude stocks of 12mn bbl for the week to February 9. Gasoline inventories fell 3.7mn bbl.
  • Brent futures ended down 1.4% to USD 81.6/b, while WTI fell 1.6% to USD 76.6/b.



Written By

Daniel Richards Senior Economist

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