Chart Chart Chart

Chart of the Week : Is a recession inevitable in the United Kingdom ?

Macro
CD
Christopher Dembik

Head of Macro Analysis

Summary:  In today’s ‘Macro Chartmania’, we focus on the UK economy following the release last week of worrying data about consumer confidence. All the data are collected from Macrobond and updated each week.


Click here to download this week's full edition of Macro Chartmania composed of more than 100 charts to track the latest macroeconomic and market developments.

A global recession is not our baseline. But we acknowledge that several countries are likely to enter into technical recession this year. We are very pessimistic about the United Kingdom’s outlook, especially. All the statistics released last week tend to indicate the economy will experience negative growth this quarter : the GfK consumer confidence fell below all-time low, at minus 40 in April, due to the surge in cost of living, retail sales look stagnant in the medium-term despite the short-term April rebound (+1.4 % MoM in volumes) and the April CPI jumped by two percentage points in just a month, from 7 % YoY in March to 9 % in April. Expect it to climb above 10 % in the coming months. Add to that the effect of the extra bank holiday which is likely to reduce activity this quarter. The pool of savings accumulated through the Covid crisis remains abundant. But it is mostly concentrated among higher-income households. Therefore, it is very unlikely to help much with consumption.

All the major leading indicators of the UK economy confirms the worst is yet to come. The UK OECD leading indicator, which is designated to anticipate turning points in the economy six to nine months ahead, fell in April at 100. The year-on-year rate was at 10.4 % in April 2021 ; it now stands at minus 0.4 %. This is quite a swing over a one-year period. In addition, new car registrations, which are often viewed as a leading indicator of the wider UK economy, are in free fall driven by a massive drop in consumer confidence – see below chart. In June 2021 (post-Covid peak), new car registrations were at 1.88mn. It is now at 1.61mn – a stunning drop of 11 %.

We think that at least two major developed economies are on the brink of a technical recession this year : the United Kingdom and France (which experienced stagnant growth in Q1 driven by a worrying drop in domestic demand). Australia is also a reason for worry, in our view. The Reserve Bank of Australia is tightening aggressively in a global inflation surge and business cycle that is already very long in the tooth. A policy error can easily happen, in this context. A larger number of developed economies are going through some form of stagflation (this is the case of Germany, for instance). In the United States, domestic demand remains solid (April retail sales and April industrial production figures were encouraging despite the surge in prices). A soft landing will be a complicated task for the U.S. Federal Reserve. But this is still possible. As a warning, we may adjust our forecast for global growth in the coming months if the contraction in new export orders in Germany and China (the two main global exports) last. This would give more credibility to markets’ call of global recession. This is too early to say, however. 

Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.