First to the UK, where the Bank of England releases the latest Money and Credit report on 29 November. Last month, mortgage approvals decreased significantly, dropping from 74,4000 to 66,800. And they probably have further to fall: as rates rise, more buyers will fail affordability tests and find themselves shut out of the mortgage market.
Analysis from Pantheon Macroeconomics suggests that if the rates on a two-year fixed mortgage hit 6 per cent as expected, average monthly payments could rise from £906 to £1,500. Forecasts suggest that monthly mortgage approvals could tumble as a result, hitting 55,000 in 2023 – the lowest level for a decade.
Euro area Flash CPI figures will be released on 30 November. Inflation climbed to 10.7 per cent in October, and economists expect a similar figure again this month. Energy prices remain the biggest driver of European inflation, and though lower gas prices will bring some welcome relief, the climb back down to target could be long and arduous. Analysis from Goldman Sachs suggests that headline inflation won’t peak until January, hitting 12.9 per cent as rising energy and labour costs have a delayed pass-through to consumer prices.
Eurozone unemployment figures will follow on 1 December. The European labour market remains (by EU standards) tight, with the unemployment rate at 6.6 per cent, even as fears of recession intensify. The ECB noted in October that “the weakening of the economy could lead to somewhat higher unemployment in the future” though it is not clear that this will be enough to slow wage growth.
More evidence on the US unemployment/inflation battle will emerge next week, too. The US unemployment rate stands much lower at 3.7 per cent, but the Fed’s tough stance on inflation could see joblessness soar. Analysis from Oxford Economics forecasts that the US economy will tip into recession in the first half of next year, and that the unemployment rate will rise to 4.8 per cent by the end of 2023.
Goldman Sachs analysts are more optimistic, arguing that there is still a plausible path for a ‘soft landing’ for the US economy. Head of Global Investment Research, Jan Hatzius, argues that it could still be possible to move from a high-inflation to a low-inflation economy without a recession, and that the labour market could rebalance with only a limited increase in unemployment. Industry-level data suggests that wage growth has already slowed in industries where the jobs-workers gap has narrowed – meaning some inflation relief could soon follow.