By Craig Erlam
A day after the Bank of England upgraded growth and inflation forecasts for the UK, economic data confirmed on Friday the country posted growth (just) in the first quarter, but it wasn’t all good news.
The UK economy squeezed out a tiny amount of growth in the first quarter, but it didn’t end it in a promising way, with the monthly number unexpectedly posting a 0.3% contraction. While that may have been driven in part by strike action, the fact that the economy is basically flatlining means it won’t take much to tip it into contraction or even recession.
Consumer activity has remained surprisingly resilient throughout the last 12 months despite the cost-of-living crisis which has enabled the economy to avoid recession until. But with interest rates still rising and increasing numbers being stung by higher mortgage rates as time passes, you have to wonder how much longer that can last.
And the Bank of England forecasts on Thursday weren’t particularly promising with inflation revised much higher later this year, indicating it is concerned about how stubborn price pressures will remain.
Once again, the next few months will tell us an awful lot about how quickly we can expect inflation to fall and whether the MPC is being optimistic or pessimistic with its projections.
Oil focus remains on banks, OPEC+
Oil prices were drifting lower on Friday, but recovered to trade modestly higher as we near the end of the trading week.
It would appear traders are waiting for one of two events to dictate the path of travel going forward; another bank failure or an OPEC+ production cut. You could throw US debt ceiling drama and default into the mix, but I’m only inclined to focus on remotely plausible events at this stage.
In the interim, oil appears to have stabilised in the lower trading range it briefly entered into in March, between $70 to $78 in Brent or roughly $64-74 in WTI.
A lower growth environment is seemingly expected now in light of recent bank failures and a less inspiring Chinese Covid recovery.
Gold in correction?
The gold rally and run at record territory is gradually deflating, despite inflation data this week being respectable and pointing in the right direction.
Despite it even coming in slightly better than expected, the yellow metal drifted lower for a third day, perhaps a sign the trend was looking a little tired.
Another run at record territory may well be on the cards at some point in the not-too-distant future, but for now the focus has turned to key support zones, the first of which is $1,950-1,970, where price has faced pushback repeatedly in recent months.
Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA
Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.