UK GDP surprises to the upside, services lead the growth

    The UK economy outperformed expectations in December, with GDP expanding by 0.4% mom, significantly stronger than the 0.1% growth forecast. The services sector led the way, posting 0.4% monthly growth, while production output also rebounded, rising by 0.5%. However, the construction sector remained weak, contracting -0.2% mom.

    For Q4 as a whole, GDP increased by 0.1% qoq, defying expectations for a -0.1% contraction. Services grew by 0.2% in Q4, maintaining its position as the primary growth driver, while construction saw a moderate expansion of 0.5%. However, industrial production was a notable drag, shrinking by -0.8%.

    For full-year 2024, GDP increased by 0.8% compared to 2023, a modest but better-than-feared outcome given the economic uncertainties. Services expanded by 1.3%, cushioning the economy, while production sector contracted by -1.7%, and construction grew slightly by 0.4%.

    Full UK GDP release here.

    RBNZ survey shows rate cut expectations firm up

      The latest RBNZ Survey of Expectations showed a mixed shift in inflation forecasts, with short-term price pressures edging higher but long-term expectations trending lower. The survey, nonetheless, reinforces anticipation of further rate cuts.

      One-year-ahead inflation expectation rose from 2.05% to 2.15%, marking a slight uptick. However, two-year-ahead inflation expectations dipped from 2.12% to 2.06%, while five-year and ten-year expectations both declined by 11-12 basis points to 2.13% and 2.07%, respectively.

      RBNZ’s Official Cash Rate currently stands at 4.25% following 50bps reduction in last November. Survey respondents broadly expect another 50-bps cut to 3.75% by the end of Q1. The one-year-ahead OCR expectation also moved lower, falling 10bps to 3.23%, reinforcing the view that RBNZ will continue easing policy at a measured pace.

      Full RBNZ Survey of Expectations here.

      Nagel advocates gradual rate cuts as ECB nears neutral

        German ECB Governing Council member Joachim Nagel emphasized emphasized that ECB should avoid being on “autopilot” when determining the timing of interest rate cuts.

        Speaking at the London School of Economics, he stressed that as ECB approaches the neutral rate, a “gradual approach” becomes more appropriate. Given the current uncertainty, he argued, “there is no reason to act hastily.”

        Nagel remains confident that inflation will return to 2% target by mid-year, saying, “We are not at our target, but I’m really very convinced that we will come to our target by the midst of this year.” He also dismissed concerns of an inflation undershoot.

        Bundesbank staff estimates place the neutral interest rate within a range of 1.8% to 2.5%, slightly below ECB’s current deposit rate of 2.75%.

        However, Nagel warned against relying too heavily on neutral rate estimates, calling it “risky” to base monetary policy decisions on uncertain theoretical benchmarks. Instead, he emphasized that the ECB relies on a variety of financial, real-economic, and other indicators to guide its policy stance.

        Bostic: Fed needs more clarity before cutting rates

          Atlanta Fed President Raphael Bostic signaled uncertainty over the timing of rate cuts, citing ongoing concerns about inflation and policy shifts under the Trump administration. Speaking at an event overnight, Bostic emphasized the need for “more clarity” before making any definitive moves on monetary policy.

          He acknowledged the difficulty in assessing the current economic conditions, stating, “My view is until we have more clarity, it’s going to be impossible to make a judgment about where our policy should go and how fast and at what pace, and so we’re just going to have to get more information before we’re going to be able to move.”

          He also provided his estimate for the neutral rate, which he sees in a range of 3%-3.5%. Currently, Fed’s target range stands significantly higher at 4.25%-4.5%. Bostic’s initial projection was to see rates move about halfway to neutral by year-end. but the timeline remains highly contingent on economic developments and inflation trends.

           

          Fed’s Powell: New CPI data confirms “not there” yet on inflation

            Fed Chair Jerome Powell acknowledged that the latest inflation data released yesterday confirms the US is making progress but is still “not there on inflation.”

            Following January’s stronger-than-expected CPI report, Powell said in the Congressional testimony that Fed will “keep policy restrictive for now” to bring price pressures down.

            Powell also underlined that the “economy is strong, the labor market is solid” allowing the Fed to keep a tight policy stance and wait for inflation to ease further.

            He also emphasized that one month of higher readings should not be interpreted as a complete reversal of the disinflation trend, especially given that Fed’s preferred inflation measure, the Personal Consumption Expenditures index, typically runs below CPI.

             

            US CPI rises to 3% in Jan, core CPI up to 3.3%

              US headline CPI rose 0.5% mom in January, exceeding expectations of 0.3% mom and marking the fastest monthly pace since August 2023. Core CPI, which strips out food and energy prices, also outpaced forecasts (0.3% mom) at 0.4% mom, the highest since March 2024.

              Key inflation drivers for the month included a 0.4% mom increase in shelter costs, a 1.1% mom jump in energy prices, and a 0.4% mom rise in food prices.

              On an annual basis, CPI accelerated from 2.9% yoy to 3.0% yoy, beating expectations of 2.9% yoy and extending its upward streak for the fourth consecutive month.

              Core CPI also climbed, rising from 3.2% yoy to 3.3% yoy, surpassing the projected 3.1% yoy. Energy prices rose 1.0% yoy, while food costs were up 2.5% yoy.

              Full US CPI release here.

              ECB’s Holzmann: Inflation risks rising, rate cuts require patience

                Austrian ECB Governing Council member Robert Holzmann emphasized caution regarding rate cuts, citing renewed inflation risks from tariffs.

                Speaking to CNBC, Holzmann noted that while inflation pressures had previously “somewhat dissipated,” the latest developments, particularly increased trade frictions, pose fresh threats to price stability. As a result, policymakers must be careful in their approach on policy easing.

                Holzmann explained that while increased trade barriers may reduce economic growth, they also contribute to inflationary pressures. “We will have to be more patient,” he stated.

                Addressing speculation about a larger 50 basis point rate cut, Holzmann dismissed the idea, arguing that ECB’s mandate is to manage inflation, not stimulate growth.

                “Using the interest rate in order to initiate a higher growth is not the way how we should work,” he stated.

                ECB’s Villeroy warns of negative impact from US tariffs

                  French ECB Governing Council member Francois Villeroy de Galhau cautioned that US President Donald Trump’s tariffs will “very likely” have a “negative effect” on the economy.

                  Speaking on France Culture radio, Villeroy criticized “protectionism is a seductive short-term policy, but in the long term it is a losing strategy.”

                  Despite trade tensions, Villeroy maintained an optimistic view on France’s economic resilience. He reaffirmed that the country is likely to avoid a recession in 2025.

                  Bank of France indicated on Tuesday that French GDP is on track to expand by 0.1% to 0.2% in the first quarter.

                  Fed’s Williams: Current modestly restrictive policy well positioned to achieve dual mandate

                    New York Fed President John Williams stated in a speech overnight that policy remains “well positioned” to balance the dual mandate. He added that the current “modestly restrictive” policy is expected to support a gradual return to 2% inflation while maintaining economic growth and labor market resilience.

                    Nevertheless, Williams also acknowledged the high degree of uncertainty surrounding the economic outlook, particularly concerning fiscal, trade, immigration, and regulatory policies.

                    On the labor market, Williams noted that it has reached a “good balance” after a period of “unsustainably tight conditions” in prior years. He highlighted that wage growth has now aligned with productivity gains, which should keep inflationary pressures contained. He projected inflation at around 2.5% this year and expects it to reach the Fed’s 2% target “in coming years.”

                    Williams also forecasted that the unemployment rate would remain stable between 4% and 4.25% throughout the year, with GDP growth expected to hold around 2% both in 2025 and 2026.

                     

                    ECB’s Schnabel: Europe must rethink export-driven model amid geopolitical fragmentation

                      ECB Executive Board member Isabel Schnabel emphasized in a speech that while interest rate cuts could help “mitigate economic weakness”, they are not a cure-all for the deeper “structural crises” facing Eurozone.

                      She pointed to persistent issues such as high energy prices, declining competitiveness, and labor shortages, which continue to weigh on the region’s economic outlook.

                      Schnabel acknowledged the growing pressures facing Europe’s economy, particularly in light of Donald Trump’s return to the White House and his trade policies.

                      “The export-led growth model needs to be reconsidered in the face of this increasing geopolitical fragmentation,” she stated.

                      Powell reaffirms Fed’s patience, signals no urgency for rate cuts

                        Fed Chair Jerome Powell reiterated in the Semiannual Monetary Policy Report to Congress that Fed is not in a hurry to cut interest rates.

                        A prolonged policy hold remains on the table if inflation does not continue its downward trend. However, he also acknowledged that if the labor market weakens or disinflation accelerates, Fed could respond with further easing.

                        Powell noted that if inflation fails to make sustained progress toward the 2% target, Fed can “maintain policy restraint for longer.” On the flip side, if the labor market weakens unexpectedly or inflation declines more rapidly than forecast, Fed “can ease policy accordingly.”

                        Full opening remarks of Fed Powell here.

                        Fed’s Hammack supports prolonged policy pause

                          Cleveland Fed President Beth Hammack reinforced the case for a prolonged pause in rate cuts, emphasizing that it will likely be “appropriate to hold the funds rate steady for some time.”

                          She highlighted the need for a patient approach, allowing Fed to assess the labor market, inflation trends, and overall economic performance under the current policy stance.

                          Hammack noted that inflation risks remain “skewed to the upside,” with possibility of delaying the return to 2% target. The “recent history” of elevated inflation adds complexity to the outlook, raising concerns about entrenched pricing pressures.

                          She also pointed to “considerable uncertainty” surrounding government policies, particularly with regard to the “ultimate effects” of recent tariff measures.

                          US NFIB small business optimism drops as uncertainty rises, hiring challenges persist

                            NFIB Small Business Optimism Index declined to 102.8 in January, missing market expectations of 104.6 and falling from December’s reading of 105.1.

                            The decline reflects growing concerns among small business owners, as seven out of the 10 components of the index deteriorated, while only one improved. Additionally, the Uncertainty Index surged 14 points to 100, marking the third-highest reading in its history after two months of easing uncertainty.

                            NFIB Chief Economist Bill Dunkelberg highlighted while there is still “optimism regarding future business conditions,” uncertainty is climbing. One major concern remains the persistent “hiring challenges,” as businesses struggle to find qualified workers to fill vacancies. Capital investment plans are also being reconsidered.

                            Full NFIB release here.

                            BoE’s Mann: Larger rate cut needed to send clear market signal

                              BoE MPC member Catherine Mann explained her unexpected vote for a 50bps rate cut last week. Speaking to the Financial Times, she emphasized that “Demand conditions are quite a bit weaker than has been the case”, prompting a reassessment of her stance on inflation risks.

                              She now sees inflationary pressures easing faster, with pricing trends aligning closely to 2% target in the year ahead. This marks a notable shift from her previously hawkish position, which had consistently supported maintaining restrictive monetary policy.

                              A key reason for her preference for a larger cut was the need to deliver a stronger signal to financial markets. She argued that a half-point move would help “cut through the noise” and provide clearer guidance on the need for looser financial conditions in the UK.

                              “To the extent that we can communicate what we think are the appropriate financial conditions for the UK economy, a larger move is a superior communication device,” she noted.

                              Mann’s stance aligns her with Swati Dhingra, the most dovish member of the MPC, who also advocated for a 50bps cut to 4.25% at last week’s meeting. The final decision was a more measured 25bps reduction to 4.50%.

                              Australian NAB business confidence rebounds to 4, but conditions remain weak

                                Australia’s NAB Business Confidence index made a strong recovery in January, rising from -2 to 4 and returning to positive territory. However, despite this uptick in sentiment, underlying business conditions deteriorated.

                                Business Conditions index dropped from 6 to 3, marking a notable slowdown. Within this, trading conditions slipped from 10 to 6, while profitability conditions turned negative, falling from 4 to -2. On a more positive note, employment conditions edged up slightly from 4 to 5.

                                Cost pressures remained a key concern for businesses. Purchase cost growth eased to 1.1% on a quarterly equivalent basis, down from 1.4%. Labor cost growth picked up slightly to 1.8%. Meanwhile, final product price growth held steady at 0.8%, while retail price inflation inched up to 0.9%. Businesses are struggling to fully pass on rising costs to consumers.

                                NAB Chief Economist Alan Oster noted that while confidence improved, it is uncertain whether this momentum will be sustained. Elevated cost pressures, particularly on wages and input costs, continue to weigh on overall business conditions.

                                Full Australia NAB business confidence release here.

                                Australia’s Westpac consumer sentiment ticks up, RBA to start cutting this month

                                  Australia’s Westpac Consumer Sentiment Index rose slightly by 0.1% mom to 92.2 in February. While consumer mood improved significantly in the second half of 2024, the past three months have shown stagnation.

                                  Westpac noted that financial pressures on households persist and a more uncertain global economic climate has also played a role in dampening optimism.

                                  RBA is likely to begin policy easing at its next meeting on February 17–18. Westpac highlighted that recent economic data on core inflation, wage growth, and household consumption indicate that inflation is “returning to target faster” than previously expected.

                                  These factors provide RBA with the confidence to initiate a 25bps rate cut this month, marking the first step in what is expected to be a “moderate” easing cycle through 2025.

                                  Full Australia Westpac consumer sentiment release here.

                                  Eurozone Sentix rises to -12.7, but inflation keeps ECB in check

                                    Eurozone investor sentiment showed signs of improvement in February, with the Sentix Investor Confidence Index rising from -17.7 to -12.7, surpassing expectations of -16.4. This also marks the highest reading since July 2024, signaling a tentative shift in market sentiment. Current Situation Index also improved, climbing from -29.5 to -25.5, while Expectations Index made an even more notable leap from -5 to 1, also reaching its highest level since July last year.

                                    Sentix noted that the Eurozone economy is “trying to emerge from the crisis,” with some early signs of stabilization. However, Germany’s economic struggles continue to act as a drag on the broader region, described as a “lead weight” on the bloc’s recovery. Despite this, optimism is growing that a potential shift in German leadership could usher in a more pro-business policy stance, which could help lift economic prospects in the months ahead.

                                    One key takeaway from the report is the diminishing likelihood of aggressive monetary easing from ECB. With investor sentiment improving and the economic outlook brightening, “hopes of more significant support measures from the ECB are also dwindling.”

                                    Inflation outlook remains a lingering concern, preventing ECB from committing to deeper rate cuts. Sentix’s “Inflation” theme index remained at -11 points, signaling persistent price pressures.

                                    Full Eurozone Sentix release here.

                                    China’s CPI picks up to 0.5%, but factory prices remain stuck in deflation

                                      China’s consumer inflation accelerated at the start of 2025, with CPI rising from 0.1% yoy to 0.5% yoy in January, slightly exceeding market expectations of 0.4%. This marked the fastest annual increase in five months. On a monthly basis, CPI surged 0.7% mom, the strongest rise in over three years.

                                      Core inflation, which strips out food and fuel prices, edged up from 0.4% yoy to 0.6% yoy, reflecting a modest pickup in underlying demand. Food prices climbed by 0.4% yoy, while non-food categories also posted a 0.5% yoy increase.

                                      However, despite these gains, consumer inflation remains well below the government’s target, with full-year 2024 CPI growth coming in at just 0.2%, the lowest since 2009, and reinforcing the persistent weakness in domestic consumption.

                                      Meanwhile, producer prices remained firmly in deflationary territory. PPI held steady at -2.3% yoy in January, missing expectations of a slight improvement to -2.2% yoy. This marks the 28th consecutive month of factory-gate deflation, highlighting ongoing struggles within the manufacturing sector and pricing pressures stemming from weak external demand and excess capacity.

                                      Canada’s employment grows 76k, unemployment rate down to 6.6%

                                        Canada’s labor market significantly outperformed expectations in January, with employment rising by 76.0k, far exceeding 26.5k forecast. The biggest job gains were seen in manufacturing (+33k, +1.8%) and professional, scientific, and technical services (+22k, +1.1%).

                                        The unexpected strength in employment was further reinforced by decline in the unemployment rate from 6.7% to 6.6%, beating market expectations of a slight uptick to 6.8%.

                                        Despite the surge in hiring, wage growth showed signs of moderation, with average hourly earnings rising 3.5% yoy, down from 4.0% yoy in December. Total actual hours worked rose 0.9% mom, with a 2.2% annual increase.

                                        Full Canada employment release here.

                                        US NFP grows 143k, wages growth strong

                                          US non-farm payroll job growth fell short of expectations but wage growth exceeding forecasts. Employers added 143k jobs, missing the 169k estimate and coming in below the 2024 monthly average of 166k. However, the downward surprise was offset by a significant upward revision to December’s number, which was adjusted from 256k to 307k.

                                          Unemployment rate unexpectedly dropped from 4.1% to 4.0%. At the same time, the labor force participation rate ticked slightly higher to 62.6%, reinforcing signs of a still-active workforce. While the decline in headline job creation might signal a cooling labor market, the improvement in unemployment suggests that the slowdown is not yet severe.

                                          The standout data point in the report was wage growth, with average hourly earnings surging 0.5% mom, surpassing the expected 0.3% mom increase. On an annual basis, wages rose 4.1% yoy, a sign that businesses are still competing for workers despite moderation in hiring.

                                          Full US non-farm payrolls release here.