Week ahead: Recession signals to flare up in fresh PMI and government borrowing to hit £18bn
Investors this week will be eyeing fresh surveys for more clues on whether the UK economy has slipped into recession.
London’s premier FTSE 100 index’s strong start to 2023 came off the boil slightly last week, shedding nearly one per cent to close at 7,770.59 points, while its mid-cap domestically-focused peer the FTSE 250 dropped 1.25 per cent to 19,702.63 points.
Top of traders’ minds this week will be a new purchasing managers’ index (PMI) on Tuesday, with most expecting activity to have inched up marginally in December after businesses and consumers passed “peak pessimism” in the early winter, Sanjay Raja, senior economist at Deutsche Bank, said.
The consensus forecast is for the services index to have nudged closer to the 50 point mark that separates growth and contraction. The manufacturing industry will fare worse with its index still firmly below the threshold.
FTSE 100’s strong start to year softened last week
Pegging consumers’ energy bills at £2,500 to help shield them from the cost of living crisis is likely to have kept the gap between the government’s tax revenues and spending wide.
A weakening UK economy caused by inflation surging to a 40-year high is also squeezing the government’s tax revenues. A stronger than expected November GDP print of 0.1 per cent growth means the UK may have narrowly escaped a recession at the tail end of 2022.
Analysts reckon the difference between the two – known as the deficit – will be £18bn, among the highest monthly December totals on record.
Experts have forecast chancellor Jeremy Hunt is expected to save £11bn, with the cost of the government’s energy bills support package falling as energy prices climb down from record highs.
The pound could come under pressure if the borrowing numbers are larger than forecast by raising concerns about the sustainability of the UK’s finances. It has gained ground on the US dollar this year.
On the corporate front, short haul budget airline Easyjet posts results on Wednesday. The company is likely to have notched a jump in revenues due to Brits taking the skies once again after Covid-19 travel restrictions were rolled back.
Dr Martens were scheduled to post results on Thursday, but that update pulled forward to last week to flag to investors costs are rising due to supply chain breakdowns, meaning profits will come in lower than expected.