Evelyn Reynolds

The Labour government, Treasury and Bank of England were given something of a reprieve on Wednesday when the latest inflation data showed consumer price growth had cooled more than expected in the twelve months to December.
The consumer price index rose to a lower-than-expected 2.5% in December, with core price growth slowing further. The print came in below expectations with economists polled by Reuters expecting the inflation rate to remain unchanged from November’s 2.6% reading.

The Royal Exchange and the Bank of England.
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The U.K. economy grew at a lackluster pace of 0.1% in November, data from the Office of National Statistics (ONS) showed Thursday, with the reading fueling expectations that the Bank of England will proceed with an interest rate cut next month.
The latest data print compares with the 0.2% month-on-month growth expected by economists polled by Reuters.

Monthly real gross domestic product (GDP) fell by 0.1% in October, following a decline of 0.1% in September and growth of 0.2% in August.
The ONS said the slight growth in economic output in November was largely due to growth in the services sector. While meager, the data is the first sign of life in the U.K.’s wider economy for three months.
British Chancellor Rachel Reeves said in a statement after the data Thursday that she was “determined to go further and faster to kickstart economic growth.”
“That means generating investment, driving reform and a relentless commitment to root out waste in public spending, and today I will be pressing regulators on what more they can do to deliver growth,” she said in emailed comments from the Treasury.
The ONS nevertheless said the real GDP is estimated to have shown no growth in the three months to November, compared with the three months to August.

“Services showed no growth over this three-month period, while production fell by 0.7% and construction grew by 0.2%,” the ONS said in the data release.
The British pound fell 0.2% against the dollar to trade at $1.2214 following the GDP print, which comes as the Bank of England considers whether to lower interest rates at its next meeting on Feb.6.
Economists say the latest data only fuels the case for a rate cut next month, although BOE policymakers will be factoring in inflationary pressures, such as resilient wage growth and uncertainty over Britain’s economic outlook. The central bank’s inflation target is 2%.
“Together with December’s softer-than-expected CPI inflation print, today’s release revealed that the economy continued to have little momentum towards the end of last year, leaving us content with our view that the Bank of England will cut interest rates from 4.75% to 4.50% in February,” Capital Economics’ UK Economist Ashley Webb said in an emailed note.

Labour under pressure

The Labour government and Treasury have been under pressure in recent weeks amid rising government borrowing costs and questions over their fiscal plans and higher tax burden on businesses.
Both were given something of a reprieve on Wednesday, however, when the latest inflation data showed consumer price growth had cooled more than expected to 2.5% in December, with core price growth slowing further.
The print came in below the expectations of economists polled by Reuters, who had anticipated the inflation rate would remain unchanged from the 2.6% reading of November.
Core inflation, which excludes more volatile food and energy prices, came in at 3.2% in the twelve months to December, down from 3.5% in November.
The U.K.’s inflation rate had hit a more than three-year low of 1.7% in September, but monthly prices had accelerated since then on the back of higher fuel costs and the price of services. In December, the annual services inflation rate stood at 4.4%, down from 5% in November.
The U.K. economy has found itself in a tight spot of late, with economists voicing concerns over the country’s sluggish growth prospects and worries over headwinds caused by both external factors, such as potential trade tariffs once President-elect Donald Trump takes office on Jan. 20, along with internal fiscal and economic challenges that have dogged the Labour government and Treasury since the October budget.
“The near stagnation of GDP in November has dampened the optimism sparked by yesterday’s unexpected drop in inflation. Meanwhile, the widening trade deficit highlights the persistent challenges faced by UK businesses as they contend with an increasingly complex global landscape,” Samuel Edwards, head of Dealing at global financial services firm Ebury, said in emailed comments Thursday.”The incoming U.S. administration brings both opportunities and challenges. While uncertainty around policy direction persists, there is optimism that closer trade ties could unlock significant potential in one of the UK’s largest markets,” he noted.
The government’s efforts to strengthen links with the EU and China, Edwards noted, “reflect a clear strategy to diversify export opportunities and enhance long-term economic resilience.”
Correction: This article’s headline has been updated to reflect the U.K. economy grew by 0.1% in November. A previous version had misstated the figure. More

The consumer price index increased a seasonally adjusted 0.4% on the month, putting the 12-month inflation rate at 2.9%. The annual number was in line with forecasts.
Core CPI annual rate was 3.2%, a notch down from the month before and slightly better than the 3.3% outlook.
Shelter prices, which comprise about one-third of the CPI weighting, rose by 0.3% but were up 4.6% from a year ago, the smallest one-year gain since January 2022.
Stock market futures surged following the release while Treasury yields tumbled.

Prices that consumers pay for a variety of goods and services rose again in December but closed out 2024 with some mildly better news on inflation, particularly on housing.
The consumer price index increased a seasonally adjusted 0.4% on the month, putting the 12-month inflation rate at 2.9%, the Bureau of Labor Statistics reported Wednesday. Economists surveyed by Dow Jones had been looking for respective readings of 0.3% and 2.9%.

However, excluding food and energy, the core CPI annual rate was 3.2%, a notch down from the month before and slightly better than the 3.3% forecast. The core measure rose 0.2% on a monthly basis, also 0.1 percentage point less than expected.
Much of the move higher in the CPI came from a 2.6% gain in energy prices for the month, pushed higher by a 4.4% surge in gasoline. That was responsible for about 40% of the index’s gain, according to the BLS. Food prices also rose, up 0.3% for the month.
On an annual basis, food climbed 2.5% in 2024 while energy nudged down by 0.5%.

Shelter prices, which comprise about one-third of the CPI weighting, rose by 0.3% but were up 4.6% from a year ago, the smallest one-year gain since January 2022. Services prices excluding rents rose 4% from a year ago, the slowest since February 2024.
Stock market futures surged following the release while Treasury yields tumbled.

Though the numbers compared favorably to forecasts, they still show that the Federal Reserve has work to do to reach its 2% inflation target. Headline inflation moved down from its 3.3% rate in 2023, while core was 3.9% a year ago.
“Today’s CPI may help the Fed feel a little more dovish. It won’t change expectations for a pause later this month, but it should curb some of the talk about the Fed potentially raising rates,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “And judging by the market’s initial response, investors appeared to feel a sense of relief after a few months of stickier inflation readings.”
The inflation readings this week – the BLS released its produce price index Tuesday – are expected to keep the Fed on hold when it convenes its policy meeting later this month.
While the market cheered the CPI release, the news was less positive for workers: Inflation-adjusted hourly earnings for the month fell by 0.2%, putting the year-over-year gain at just 1%, the BLS said in a separate release.
Details in the inflation report otherwise were mixed.
Used car and truck prices jumped 1.2% while new vehicle prices also moved higher by 0.5%. Transportation services surged 0.5% and were up 7.3% year over year, while egg prices jumped 3.2%, taking the annual gain to 36.8%. Auto insurance rose 0.4% and was up 11.3% annually.
“The inflation rate is currently grappling with a ‘last mile’ problem, where progress in reducing price pressures has slowed,” said Sung Won Sohn, a professor at Loyola Marymount University and chief economist at SS Economics. “Key drivers of inflation, including gas, food, vehicles, and shelter, remain persistent challenges. However, there are signs of hope that long-term inflationary pressures may continue to ease, aided by moderating trends in critical sectors such as shelter and labor costs.”
The report comes with markets skittish over the state of inflation and the Fed’s potential response. Tariffs and mass deportations that President-elect Donald Trump has promised have increased concerns over inflation.
Job growth in December was much stronger than economists had expected, with the gain of 256,000 further raising concerns that the Fed could stay on hold for an extended period and even contemplate interest rate increases should inflation prove stickier than expected.
The December CPI report, coupled with a relatively soft reading Tuesday on wholesale prices, shows that while inflation is not cooling dramatically, it also isn’t indicating signs of reaccelerating.
A separate report Wednesday from the New York Fed showed manufacturing activity softening but prices paid and received rising substantially.
Futures pricing continued to imply a near certainty that the Fed would stay on hold at its Jan. 28-29 meeting but tilted to nearly 50-50 chance of two rate cuts through the year, assuming quarter percentage point increments, according to CME Group figures. Markets expect the next cut likely will happen in May or June.
The Fed uses the Commerce Department’s personal consumption expenditures price index as its primary forecasting measure for inflation. However, the CPI and PPI measures figure into that calculation.
The two readings likely mean that the core PCE will rise just 0.2% in December, keeping the annual rate at 2.8%, according to Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.

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The German economy contracted by 0.2% in 2024, data from statistics office Destatis showed Wednesday.
This is the country’s second consecutive yearly economic slowdown and was in line with expectations from economists polled by Reuters.
Germany has been facing a series of economic struggles, including a long-standing housebuilding crisis and pressure on its autos industry.

The skyscrapers of the Frankfurt skyline in the evening, with the Deutschherrn Bridge in the foreground.
Frank Rumpenhorst | Picture Alliance | Getty Images

The German economy contracted by 0.2% in 2024, in the country’s second consecutive yearly slowdown, data from statistics office Destatis showed Wednesday.
The drop was in line with the expectations of economists polled by Reuters, according to LSEG data. The European Commission and a group of Germany’s leading economic institutes had both independently forecast a 0.1% dip in the German GDP in 2024.

Ruth Brand, president of the German statistics agency, said that “cyclical and structural pressures” hindered stronger economic development.
“These include increasing competition for the German export industry on key sales markets, high energy costs, an interest rate level that remains high, and an uncertain economic outlook,” she said in a statement.
Destatis said that both the manufacturing and construction sectors had suffered in 2024, while the services sectors recorded growth over the period.
The country has been dealing with a long-standing housebuilding crisis, which has been attributed to higher interest rates and construction costs. Several of Germany’s key industries, including the auto sector, have also been under pressure for some time. Carmakers have been struggling with the transition to electric vehicles, as well as competition from Chinese counterparts.
The German stock index DAX was last higher after the data release, climbing by 0.47% at 10:24 a.m. London time after already having started the day in positive territory.

Germany’s economy had already contracted by 0.3% in 2023.

Fourth quarter

Destatis on Wednesday also released an early first reading of the gross domestic product (GDP) in the fourth quarter, based on currently available information. The economy fell by 0.1% in the three months to end of December, compared with the previous quarter, when adjusted for price, seasonal and calendar variations. The regular first reading of Germany’s GDP for the fourth quarter will be released later this month, Destatis noted.
Robin Winkler, chief Germany economist at Deutsche Bank, on Wednesday said that, while the annual GDP contraction should not be a surprise to anyone, the preliminary reading for the fourth quarter of 2024 was unexpected and worrisome.
“If confirmed, it would mean that the German economy lost momentum again at the start of winter. The current political uncertainty in Berlin and Washington was likely an important factor,” he said in comments translated by CNBC.
Looking ahead, German economic institute Ifo on Wednesday warned that unless economic policy reforms are introduced, the German economy would struggle to “break free from stagnation” in 2025, with the institution expecting “perceptible growth” of 0.4% over the period in this scenario.
“If no countermeasures are taken, the ifo researchers fear that manufacturing companies will continue to relocate production and investments abroad,” the institute said in a statement. “Productivity growth would also remain weak, as value added and employment in highly productive industries would be replaced by value added in service sectors with low productivity growth.”
If “the right” policies are introduced, investing and working in Germany could nevertheless become a more viable option again, and the economy could expand by as much as 1%, Ifo added. More

New Zealand is the latest country to sign an economic partnership with the United Arab Emirates.
New Zealand’s prime minister told CNBC that the South Pacific island nation has to look beyond its own backyard for trade opportunities.
The free trade agreement signed on Monday between New Zealand and the UAE is seen by Prime Minister Christopher Luxon as a chance to expand bilateral trade between the countries.

Cattle photographed in New Zealand. Agriculture plays a major role in New Zealand’s economy, especially when it comes to exports.
David Clapp | Stone | Getty Images

New Zealand’s prime minister told CNBC the country has to look beyond its own backyard for trade opportunities, as the South Pacific island nation signs an economic partnership with the United Arab Emirates (UAE).
The free trade agreement, known formally as the Comprehensive Economic Partnership Agreement (CEPA), is seen by Prime Minister Christopher Luxon as a chance to expand bilateral trade between the countries and makes the UAE one of the island’s largest markets in the Middle East.

“We’ve had a long-standing relationship over 40 years of diplomatic recognition, and really the chance now for us is to deepen and to broaden the economic relationship,” Luxon told CNBC Monday.
“That’s why the signing of the CEPA and also the bilateral investment treaty is really important, because actually these are two small advanced economies in the world that actually have a lot in common and alot of common values, and we want to be able to work together and build out that relationship.”
New Zealand’s key exports to the UAE include dairy, industrial products, meat, horticultural products and travel services, the government said as it announced the deal. The agreement, expected to come into force later this year, comes as the government aims to double the value of exports in 10 years. It said the CEPA will mean that 99% of New Zealand goods exporters are able to access the UAE market duty free.
“This includes all New Zealand’s dairy, red meat, horticultural and industrial products immediately when the Agreement enters into force,” it noted. 
“One in four of our jobs in New Zealand are tied very much to trade,” Luxon, head of the center-right New Zealand National Party who’s been in power since late 2023, told CNBC’s Dan Murphy in Abu Dhabi Monday.

“When you see a New Zealand company that’s exporting out to the world, it’s able to pay its workers7% higher salaries and wages, and they’re often our more productive companies. The message to people at home is that they understand that we are a trading nation. We don’t get rich just selling stuff to each other in the South Pacific or within New Zealand,” he said.
“We actually need to send out great products and services out into the world, of which there’s huge demand for, and make sure we open up new markets like the Middle East to actually get those products too. In doing that, we bring more money back at home, and that, obviously, is the way in which we can afford better public services like health and education,” Luxon added.
New Zealand is in need of an economic boost after its economy contracted last year and entered recession territory in the third quarter. The economy shrunk by 1% in the July-September quarter, data released in December showed.
The fall followed a 1.1% contraction in the previous quarter. Two straight quarters of negative growth is widely considered a technical recession.

WELLINGTON, NEW ZEALAND – NOVEMBER 03: Incoming Prime Minister and National Party leader Christopher Luxon speaks during a media stand-up at Parliament on November 03, 2023 in Wellington, New Zealand. Special votes cast overseas and by mail were certified on Friday, finally sealing the results of New Zealand’s general elections. The Labour party was soundly defeated by the National Party, led by Christopher Luxon, winning the most votes. National will however need the support of both ACT and NZ First parties to form the next coalition Government. (Photo by Hagen Hopkins/Getty Images)
Hagen Hopkins | Getty Images News | Getty Images

Luxon said there was no doubt that the past three years had been “a very challenging time” for the country, but said inflation, at 2.2% in October, was under control and interest rates were coming down. The country’s central bank has flagged that further easing is to come at its next meeting on Feb. 19.
“We’ve got business confidence at a 10-year high. We’ve got consumer confidence at a three-year high. We’ve got farmer confidence the highest it’s been since 2017 so we know we’ve got the conditions that people are believing there’s a better future,” he added.
“Now we’ve got to convert and really drive into growth, and that’s where these stronger international trading connections are, but also encouraging inbound investment to New Zealand as well.”
Asked how he felt about Donald Trump returning to power in the U.S., and the possibility of tariffs on exports to the States as the president-elect has widely signaled (with a potential universal tariff of 10% or 20% on all goods imported to the U.S.), Luxon said he was in “wait-and-see” mode.
“We’re going to work well with whichever Administration the Americans select, and they’veselected Donald Trump and the Republican Administration. And I’ve got every confidence we’ll work very constructively with them. We’ll have to wait and see as to what is the tariff policy in terms of how it actually does get played out, or what gets played out,” he said. More