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In our Market Insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.
UK exits recession with fastest observed growth in two years
The UK made a robust comeback from recession at the beginning of the year, surpassing expectations with a 0.6% growth in the economy between January and March.
This marked the swiftest expansion in two years, according to official data. Following two consecutive quarters of contraction, the UK slipped into recession at the close of the previous year.
Presently, interest rates stand at their loftiest in 16 years, resulting in increased expenses for borrowing, including mortgages and loans. However, savers are reaping improved returns. Recent weeks have witnessed a gradual rise in mortgage rates, as projections for a Bank of England interest rate reduction have been postponed.
Despite expectations of an inflation drop aligning with the bank's target over the next months, the unexpectedly robust growth figures have tempered anticipations of a rate cut in June.
The surge in early-year growth was primarily propelled by the services sector, encompassing areas like hospitality, arts, and entertainment, likely buoyed by an early Easter in March, as noted by the Office for National Statistics (ONS).
Anecdotal evidence, gleaned from credit and debit card transactions, suggests increased consumer spending on clothing and home furnishings. Although car manufacturers enjoyed a fruitful quarter, the construction sector remained lacklustre.
Nonetheless, despite the overall economic rebound, many individuals may not perceive an improvement in their financial circumstances.
Adjusting for inflation and population growth, growth per capita remains 0.7% lower compared to a year earlier.
Although the economy contracted in the latter half of the preceding year, the recession was relatively mild compared to historical records.
Reduced consumer spending, attributed to escalating shop prices and elevated mortgage costs due to higher interest rates, contributed to the recession.
Slowdown in US job market growth revives further talks of cuts
Last month, job growth in the US eased, and the unemployment rate edged up, indicating a potential moderation in the momentum of the world's largest economy.
According to the Labour Department, employers added 175,000 positions in April, while the unemployment rate climbed from 3.8% in March to 3.9%. This marked the lowest increase in jobs since October and the first instance in several months where growth fell below analysts' expectations.
The US labour market has been under close scrutiny for signs of deceleration, especially as borrowing costs have remained at their highest levels in two decades.
Analysts suggest that this report could strengthen the argument for the Federal Reserve to reduce interest rates later this year. The Federal Reserve had aggressively raised interest rates starting in 2022 to temper economic growth and alleviate the inflationary pressures, which were surging at the fastest pace in decades.
While analysts had anticipated rate cuts this year as inflation cooled slightly to 3.5% in March, still above the bank's 2% target, uncertainties lingered regarding the timing of such actions.
The unexpectedly robust job market, which has bolstered consumer spending and the broader economy, has added complexity to these deliberations.
Simultaneously, it has raised optimism that the US might sidestep a severe economic downturn often associated with a spike in borrowing costs. Following the release of the latest job figures from the Labour Department, US shares opened on a positive note.
Although the pace of job growth in April remained relatively steady, albeit slower compared to previous months, employers added 315,000 positions in March and 236,000 in February.
The Labour Department revised these figures downward by about 22,000. In April, most sectors saw an increase in employment, with healthcare firms driving the gains, as reported.
Additionally, the Labour Department noted that average hourly earnings rose by 3.9% over the twelve months leading up to April, marking a slower rate of increase compared to the previous month.
German economic advisors to cut 2024 growth forecast
According to a draft document set to be presented on Wednesday, the German Council of Economic Experts anticipates a 0.2% growth in gross domestic product (GDP) for this year.
For 2025, their projections suggest a growth of 0.9%, as disclosed by a source on Tuesday. This contrasts with their earlier forecast in November 2023, where they predicted a 0.7% growth for 2024.
Germany's economy contracted by 0.2% last year, marking the weakest performance among the largest eurozone economies, attributed to factors such as high energy costs, subdued global orders, and historically high interest rates.
However, at the beginning of this year, Germany managed to evade a recession, exhibiting a 0.2% growth in the first quarter compared to the preceding three-month period after adjustments. In the last quarter of 2023, the economy had shrunk by 0.5%.
While the first quarter saw a slight uptick in economic growth, with GDP rising by 0.2% compared to the previous three-month period, analysts had expected a more modest 0.1% increase. Despite this higher-than-expected figure, economists remain cautious, citing structural weaknesses that may constrain Germany's recovery.
Notably, the economic outlook for 2024 from the German Council of Economic Experts is somewhat less optimistic than that of the German government, which foresees a 0.3% GDP growth this year.
Recent data from the statistics office revealed that German retail sales exceeded expectations in March, surging by 1.8% month-on-month, indicating a rebound in consumption toward the end of the quarter, which augurs well for the overall economic scenario.
However, the statistics office noted a decline in household consumption for the first quarter as a whole in its latest GDP press release, although further detailed information was not given.
