Your Leading Indicators | Brexit Deal | Energy Price Cap | UK Economic Output
Discover key economic and financial metrics, and what to look out for in the week ahead.
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Here we look at the leading indicators commodities, trade, equities and more. in the world of economics. Download the dashboard for in-depth analysis into commodities, trade, equities and more.
EU and UK amend Northern Ireland Brexit deal
The UK and EU have reached a deal over post-Brexit trading arrangements in Northern Ireland (NI). The new deal will see goods coming from Britain to NI to be divided into two lanes, with goods destined for NI in the less restricted ‘green’ lane, while goods heading on to the EU would be placed in the ‘red’ lane and will be subject to full customs and checks. The deal also includes the “Stormont Brake”, which will give a future NI Assembly a potential veto on how EU laws apply to NI. Some economists expect the deal to unleash UK business investment. Since the pandemic, UK businesses have amassed c.£100bn, but investment stalled, partly due to the uncertainty surrounding the long term operation of the previous NI protocol. This new deal should alleviate some of this uncertainty, and encourage businesses to deploy some of this unspent capital.
Ofgem price cap moderates, easing inflation pressures
The British energy regulator, Ofgem, has lowered its price cap on household energy bills from April. The price cap is moderating from an annual level of £4,279 to £3,280, due to the recent fall in wholesale energy prices. At present, the government plans to raise the Energy Price Guarantee limit by £500 to £3,000 a year from April, which would save the government c.£2.5bn. Here, households will also have to contend with the planned removal of the Energy Bills Support Scheme payments which has been subsidising energy bills. While this may impact household spending in the near term, by July, Cornwall Insights expects the price cap to fall below the EPG, which will see falling wholesale prices “trickle down” to bills. Moderating gas prices and lower government spending is expected to alleviate pressures on inflation and interest rates, which will likely be supportive of real estate pricing.
The changing structure of the UK economy
Overall, UK economic output grew by +1% year on year in Q4, however, some sectors have recorded a significant increase. Indeed, the Arts & Entertainment (+9%), Construction (+5%) and Professional & Scientific (+4%) industries all saw increased output year on year in Q4 2022. However, some sectors including Production (-4%) and Manufacturing (-6%) saw output moderate. Here, the higher costs of materials, energy and labour likely weighed on output. For the year ahead, the Bank of England forecast inflation to fall to 4.00% from 10.1% currently, which could alleviate some pricing pressures on these sectors that have seen output decline.
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