In this week’s Macro IDB we look at US economic acceleration and the likely rate hike from the Federal Reserve (Fed) this week. Following this, we evaluate European growth momentum and political uncertainty in the UK, as well as expectations the European Central Bank (ECB) and the Bank of England (BoE) will mimic the Fed with rate hikes of their own later in the year.
Eight years into the economic recovery, with an average growth rate of 2-2.5%, there is an overall optimistic outlook for US growth in 2017 and 2018. Consumers remain the key driver of the US economy with consumer confidence at pre-crisis levels. The labour market has seen steady improvement with unemployment rates dropping from c.10% to under 5%, alongside this, wage growth year on year is now running at 2.8%.
Accommodative policy from the ECB has helped to stabilise the European economy, but the backdrop is far from booming. Core inflation pressures remain muted, unemployment, while improving, is still elevated and the variance in economic recovery between countries is still very evident. Historically the ECB has followed the path of Fed monetary policy, so it is interesting that the ECB discussed tapering asset purchases at its most recent meeting.
Brexit uncertainties make UK economic forecasts very difficult. However, given the modest inflation pressures building in the UK and the historic tendency for base rates to follow the path of US rates, it is not inconceivable to see a BoE rate hike towards the end of the year.