India’s Economy is Likely to Stand Firm in an Uncertain World

Economic

Summary:

Goldman Sachs Research expects the Indian economy to be relatively insulated against global shocks over the coming year — including tariffs levied by the new administration of US President-elect Donald Trump.

India’s GDP will keep growing strongly in the long term — but with a speed bump next year as government spending and credit growth slow, according to our economists’ forecast.

“The structural long-term growth story for India remains intact driven by favorable demographics and stable governance,” Santanu Sengupta, chief India economist at Goldman Sachs Research, writes in his team’s report.

Our economists expect India’s economy to grow at an average of 6.5% between 2025 and 2030. Their 6.3% forecast for 2025 is 40 basis points below a consensus of economists surveyed by Bloomberg.

The decelerated growth rate is, in part, because public capital expenditure growth is declining. The Indian central government’s capex growth declined from 30% year-on-year CAGR between 2021 and 2024 to mid-single digits growth in nominal terms in 2025, according to budget estimates.

India’s Economy is Likely to Stand Firm in an Uncertain World_1

Credit is also tightening. Total private sector credit growth in India peaked in the first quarter of the 2024 calendar year and decelerated over the last two quarters. The slowdown was mainly driven by bank credit growth declining to around 12.8% as of October, from over 16% in the first quarter of this calendar year. In particular, there was a slowdown in household credit growth in unsecured personal loans, following a tightening of retail loans by the Reserve Bank of India in November 2023.

What is the outlook for Indian inflation?

Headline inflation in India is expected to average 4.2% year-on-year in the 2025 calendar year, with food inflation at 4.6% — much lower than our analysts’ estimate of 7%-plus for 2024, thanks to adequate rainfall, and good sowing of the summer crop. Food supply shocks due to weather-related disruptions remain the key risk to this forecast. Thus far, elevated and volatile food inflation, mainly driven by vegetable prices due to weather shocks, has kept the RBI from easing monetary policy.

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Core inflation should be around the RBI’s target of 4% year-on-year in 2025, with some possibility that inflation will decline if US tariffs compel Chinese manufacturers to reallocate their products to regional markets.

“The easing cycle from the RBI is likely to be cautious, given uncertainties on global trade policies and their impact on financial markets,” Sengupta writes. His team estimates the nominal neutral rate at 6% for India, so the RBI’s rate cuts are likely to be shallow. Goldman Sachs Research expects the RBI to cut rates by 25 basis points in February, and then again 25 basis points in April.

“The overall preference of Indian policymakers in recent years has been macro-economic resilience over chasing short-term spurts of growth,” Sengupta writes, adding that strengthening public and private balance sheets will continue to be a priority. “The key risks to the India growth story are from exogenous shocks — while most observers do not expect India to be a direct target of Trump’s tariff policies, a rising bilateral trade surplus with the US could bring some unwanted attention.”

How will Indian stock markets fare in 2025?

India’s equities are likely to perform strongly in the medium term, according to a separate report from Goldman Sachs Research. In the near term, though, slowing economic growth, high starting valuations, and weak earnings-per-share revisions could keep markets rangebound.

Our equity strategists expect the benchmark NIFTY index to reach 27,000 by the end of 2025. They also forecast MSCI India earnings growth at 12% and 13% respectively for the calendar years 2024 and 2025 — lower than consensus expectations of 13% and 16%.

India’s Economy is Likely to Stand Firm in an Uncertain World_3

The MSCI India index of stocks is trading at a 23x forward P/E multiple, which is significantly above the 10-year mean and above our strategists’ top-down fair value estimate of 21x, suggesting further de-rating risk.

“History suggests muted near-term returns when starting valuations are high and earnings are seeing downgrades,” Sunil Koul, Goldman Sachs Research’s emerging markets equity strategist, writes in his team’s report. “We expect the market to remain range-bound over the next three months.” His team forecasts a three-month NIFTY target of 24000, but expects a back-loaded recovery to their 12-month target of 27,000, driven by underlying earnings growth.

Koul’s team remains neutral on India stocks in the near term but sees opportunities in some domestic sectors like autos, telcos, insurance, real estate, and e-commerce, which may have a clearer path to stronger earnings, he says.

To stay updated on all economic events of today, please check out our Economic calendar

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ACY

Economic

EUR - A Currency Under Strain

The EUR, one of the most traded currencies globally, has hit a rough patch EUR is now facing its largest short position in five years, a clear sign that investor sentiment is wavering. But why is this happening?

A combination of factors is at play. On the one hand, hedge funds and institutional investors are pulling back, driving outflows. On the other, recent political developments in Europe, particularly France, are adding to the uncertainty. Moody’s recent downgrade of France’s sovereign credit rating is a stark reminder of the fiscal challenges facing the Eurozone. The rating agency pointed to concerns over political fragmentation, which could hinder meaningful reforms and exacerbate debt pressures.

For the Eurozone, these challenges extend beyond financial markets. A weaker Euro can make European exports more competitive globally, but it also raises the cost of imports, potentially fuelling inflation—a delicate balance for policymakers.

Global Currency Trends: What They Reveal About the World Economy_1

The US Dollar: Strength Amid Uncertainty

The USD continues to demonstrate its resilience, holding its position as the most sought-after currency in the FX market. Several factors are working in its favour.

One major driver is the widening yield spread between US and Chinese bonds. While Chinese yields have plunged to new lows, reflecting economic weakness, US Treasury yields have rebounded. This divergence has made the USD more attractive to investors, particularly as speculation grows that the Federal Reserve might take a more cautious approach to future rate cuts.

The upcoming Federal Open Market Committee (FOMC) meeting will be pivotal. Investors are keenly awaiting updated guidance from the Fed, especially after recent inflation data pointed to cooling price pressures. However, with Fed Chair Jerome Powell signalling caution, markets may need to temper expectations for aggressive rate cuts in 2024.

Global Currency Trends: What They Reveal About the World Economy_2

The British Pound Caught in Crosswinds

The British Pound (GBP) is navigating turbulent waters, caught between domestic economic challenges and broader global trends. Last week, the Pound experienced a sharp drop against both the USD and the EUR. This came on the heels of disappointing UK GDP data, which showed the economy contracting for the second consecutive month in October.

This downturn has added to concerns about a sharper-than-expected slowdown in the second half of the year. The Bank of England (BoE) has maintained a gradual approach to monetary easing, but weaker inflation and labour market data could push it toward more aggressive rate cuts in the coming months.

For businesses and consumers in the UK, a weaker Pound has mixed implications. While it can make UK exports more competitive, it also raises the cost of imports, potentially squeezing household budgets further.

Commodity Currencies: Diverging Paths

Commodity-linked currencies like the Australian Dollar (AUD), Canadian Dollar (CAD), and New Zealand Dollar (NZD) are often influenced by global growth prospects and risk sentiment. Recently, these currencies have shown varied performance, reflecting their unique economic contexts.

The AUD has seen renewed buying interest, signalling optimism about Australia’s economic outlook. In contrast, the CAD remains the most shorted currency among the G10 group, despite some recent inflows. Meanwhile, the NZD is deeply oversold, creating the potential for a rebound if global market conditions improve.

These movements highlight the interconnectedness of global economies. For instance, shifts in commodity prices, trade flows, and investor sentiment can have ripple effects across multiple currencies, shaping the fortunes of nations reliant on exports of raw materials.

Global Currency Trends: What They Reveal About the World Economy_3

Asia’s Currency Landscape: Challenges and Opportunities

China, the world’s second-largest economy, continues to face significant economic headwinds. Recent data revealed a slowdown in retail sales growth and a fragile recovery in the housing market. This has pressured the Chinese Yuan (CNY), with the currency weakening further against the USD.

The People’s Bank of China (PBoC) is under growing pressure to implement additional monetary easing measures, such as cutting reserve requirements for banks. However, the broader question remains: Can China’s policymakers revive growth in the face of structural challenges and slowing global demand?

These developments in China are closely watched by its regional neighbours, as the country’s economic health has a direct impact on trade and investment flows across Asia.

Why It All Matters

For investors, these currency trends are more than just numbers on a screen. They reflect deeper economic narratives that can influence everything from stock markets to commodity prices. A strong USD, for example, can make imports cheaper for American consumers but might weigh on emerging markets with dollar-denominated debt.

For businesses, currency volatility presents both challenges and opportunities. Companies with international operations or trade exposure must stay agile, using tools like hedging to mitigate risks and capitalize on favourable exchange rate movements.

Finally, for policymakers, these trends underscore the need for coordinated action to address global economic imbalances. Whether it’s tackling inflation, supporting growth, or stabilizing financial markets, the stakes are high.

By understanding the forces driving currency movements, we gain valuable insights into broader economic dynamics. Whether you’re an investor, a business leader, or simply an observer of global affairs, staying informed about these trends is essential in navigating today’s interconnected world.

To stay updated on all economic events of today, please check out our Economic calendar

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Warren Takunda

Cryptocurrency

Bitcoin price has declined by more than 11% over the last four days after rallying to all-time highs above $108,360 on Dec. 17. How Low Can the Bitcoin Price Go?_1

BTC/USD daily price chart. Source: TradingView

This drop has led to questions on whether this level is the local top for BTC price and, if so, how low can Bitcoin go over the next few days.

December 2023 Bitcoin fractal hints at $88,000

Between December 2023 and January 2024, the BTC/USD trading pair exhibited a rounded accumulation pattern, consolidating within a rectangular range ($39,000–$46,000).

After a brief correction following a local high, Bitcoin broke out of the range and rallied sharply to $66,000 by March 2024. How Low Can the Bitcoin Price Go?_2

Bitcoin December 2023 vs. December 2024 market trend. Source: Follis

The current pattern demonstrates similar price action, with Bitcoin consolidating between $88,000 and $102,000. As of Dec. 20, BTC price could be undergoing a correction toward the channel’s lower boundary zone defined by the $88,000–$90,000 range.

If history repeats, Bitcoin may initially dip toward $88,000 in December, only to rebound toward the $102,000 resistance and beyond thereafter.

Popular trader Follis says $120,000 is the breakout target if this happens. How Low Can the Bitcoin Price Go?_3

Source: Don Alt

Will Bitcoin copy the 30% crash in November ’21?

However, a Bitcoin fractal on a weekly timeframe indicates that a broader price correction could be in play. BTC’s price now exhibits signs of bearish divergence, reminiscent of its 2021 market top.

The divergence is highlighted by the relative strength index (RSI) forming lower highs despite BTC/USD reaching higher highs, signaling weakening bullish momentum and a potential price correction ahead. How Low Can the Bitcoin Price Go?_4

BTC/USD weekly price chart. Source: TradingView

The 2021 bearish divergence preceded a significant drop from Bitcoin’s then-all-time high near $69,000, with the price eventually bottoming near $15,000 in late 2022.

A similar divergence appears now as BTC failed to maintain its position above $100,000.

Thus, on longer time frames, the key support to watch lies at the 50-week EMA, which will be around $66,600 by January 2025. If that fails to hold, the next support is at $57,000, which is the 0.786 Fibonacci retracement level.

BTC price eye local bottom around $97K

If Bitcoin successfully breaks out from the ascending triangle support near $97,000 visible in the chart, it could mean the cryptocurrency is already bottoming out.

The triangle’s horizontal resistance near $102,000 and ascending trendline support around $97,000 indicate buyers are maintaining higher lows, a sign of underlying strength. If BTC bounces from this support, it could set the stage for a breakout above $102,000. How Low Can the Bitcoin Price Go?_5

BTC/USD daily price chart. Source: TradingView

A confirmed breakout from the triangle projects an upside target near $114,650, measured by adding the triangle’s height (~$12,000) to the breakout level. Such a move would invalidate the immediate bearish divergence narrative and reassert bullish momentum.

However, failure to hold support would reinforce the bearish divergences and open the door for a deeper correction below $90,000 toward the aforementioned levels.

Source: Cointelegraph

Risk Warnings and Disclaimers

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Warren Takunda

Economic

New data from the ONS shows the UK consumer remains cautious and retail businesses are under pressure, providing fresh evidence the economy has entered a downturn.

Retail sales recovered from -0.7% month-on-month in October to record growth of 0.2% m/m in November; however, the figure disappointed market expectations (0.5%).

The Pound to Euro (GBP/EUR) exchange rate fell 0.60% on Thursday and is slightly softer following the retail numbers at 1.2049 on Friday. The Pound to Dollar (GBP/USD) exchange rate this morning hit its lowest level since May at 1.2474.

On an annual basis, retail sales fell from 2.0% year-on-year in October to 0.5% in November, which is less than the consensus expectation of 0.8%.

Retail sales are a major driver of the UK's service sector-based economy and signal how demand and sentiment is evolving. Therefore, the undershoot in the numbers offers yet another disappointment and confirms the economy has lost significant momentum into year-end.

In fact, the Bank of England said on Thursday it had slashed its growth forecast for the final quarter of 2024 from 0.3% to 0%.

"The pound sold off on the back of the announcement," says Dean Turner, Economist at UBS AG. "While there may be further adjustment, it is hard to see that the pound will make much ground in the short term."

Sensing a slowdown, three members of the Bank's nine-strong Monetary Policy Committee voted to cut interest rates. This surprised the Bank and suggests that it thinks it will need to cut interest rates further in the coming months to support a struggling economy.

These members can now point to the soft retail sales data as evidence of weak demand, potentially limiting fears of another spike in inflation.

"The UK consumer appears to be limping towards the finish line in 2024 - retail sales volumes came in slightly below expectations in November, with a good performance from food the only real highlight," says Charlie Huggins, Manager of the Quality Shares Portfolio at Wealth Club.

"The Autumn Budget leaves UK retailers between a rock and a hard place. The significant increase to national insurance contributions and the National Living Wage means they will have little option but to put up prices, and margins across the sector are likely to come under pressure," he adds.

Source: Poundsterlinglive

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Goldman Sachs

Economic

Germany’s economy, which has lagged behind its peers in recent years, faces a series of headwinds in 2025, including trade uncertainty with the US, still-high energy prices, and growing competition from China. Elections in February will provide an opportunity to tackle the country’s challenges.

Europe’s largest economy is forecast to expand 0.3% in 2025, which is slower than the estimate for the euro area of 0.8% and for the UK of 1.2%, according to Goldman Sachs Research. The country’s real (inflation adjusted) GDP is unchanged since the fourth quarter of 2019.

When Will the German Economy Bounce Back?_1

For all the challenges, there are also signs of German industry finding ways to adapt. “Even though industrial production is down significantly over the last few years, the amount of value added has actually been much more stable,” says Goldman Sachs Research Chief European Economist Jari Stehn. “German companies have been able to respond by moving out of relatively low-margin production in chemicals or paper, and so on, into higher value production. I think the way forward essentially is for German companies to continue to do that.”

We spoke with Stehn and analyst Friedrich Schaper about Goldman Sachs Research’s forecast for GDP growth in Germany, competition from China, and the prospect for some easing of high energy prices.

Why has Germany’s economy underperformed other advanced economies in recent years?

Jari Stehn: Since the end of 2019, the statistics are quite striking. GDP in Germany has been flat over that period while the rest of the euro area has grown by 5%, and the US has grown 11%.

There are a few obvious reasons for that. One is the energy crisis that hit Germany particularly hard since it was so reliant on Russian pipeline gas. Germany has a lot of energy-intensive production, and its economy is quite heavily focused on manufacturing activity. So it’s natural that the increase in energy prices had a bigger effect on Germany than on other countries.

Second, Germany is highly exposed to China. This has been a big asset in the past because China has grown a lot. But over the last few years growth in China has slowed, so Germany has sold fewer goods into China. Also, China has become more of a competitor over time, particularly over the last two to three years. China now produces goods that are more like the goods that Germany produces. So essentially, China has transitioned from a key export destination to a key competitor, and it has gained market share, particularly in sectors where Germany has seen big cost increases.

Third, Germany has a number of broader structural issues, such as the degree of regulation that business startups face and public underinvestment. Cumulatively over the last few years, they have put Germany in a less competitive position.

When you take all of that together, it explains a good chunk of the of the underperformance.

Your GDP growth forecast of 0.3% for 2025 is below the consensus. What explains the difference?

Jari Stehn: First, we think that many of the structural headwinds that we just talked about will continue. But then, on top of that, we also expect significant trade tensions from the second Trump administration. Germany is likely to be particularly exposed to those tensions because it's a very open economy. It's heavily focused on industrial activity. When you look back at the first Trump term, we saw a very sharp growth slowdown in 2018 and 2019. The day after the US election we downgraded our forecast for all of Europe, but particularly for Germany.

Are you expecting most of the economic impact to come from tariffs or the mere possibility of them?

Jari Stehn: The takeaway from the first Trump term was you didn't actually see many tariffs implemented on Europe, but you saw a lot of discussions around tariffs that created a lot of uncertainty, a lot of trade tension. In the end, those had big effects on investment, on confidence, and on growth in Germany.

We have set out two scenarios. One, which is our base case, is that you get a sharp increase in trade tensions, but ultimately the actual tariffs that you see are relatively limited and targeted on the auto sector. The auto sector is obviously big in Germany, so you still see a significant hit. Our estimate is a 0.6% hit to the level of GDP. The downside scenario involves an across-the-board tariff on all European imports into the US. In that scenario, we think the negative effects would be significantly bigger — about twice as large.

Either way, we think there is going to be a pronounced period of uncertainty, and that uncertainty will weigh on confidence and investment.

What are the market implications, particularly for Bunds, of the February election in Germany?

Friedrich Schaper: The market is focused on the potential for a looser fiscal stance in Europe and for Germany in particular, and the elections could be a catalyst for such loosening. However, we argue that even at the upper end of our range of expectations about higher fiscal spending, the increase in duration supply of German Bunds is relatively modest compared to the notable increase in safe asset supply that we are already observing. That’s mainly because of a structural shift in the fiscal stance in Europe and the European Central Bank, which is reducing its balance sheet. That has made an impact already, and it’s showing up in higher Bund yields and higher interest rates for euro assets.

So the additional impulse of higher spending after the elections is already well reflected in pricing, in our view. Coupled with the outlook for slowing economic growth, which we expect will lead to a sustained cycle of interest rate cuts from the ECB, Bunds remain our favorite long position among G-10 bonds.

Going back to the energy situation in Germany, are you expecting any relief on the cost front next year?

Jari Stehn: Energy prices have come down significantly from the peak days of the summer of 2022. So we've seen a lot of relief and there's probably some more relief in the pipeline in the sense that contracts in Germany are relatively long and don't reset very frequently. We do think there's some drag on the energy-intensive sectors that is still likely to lift.

We also think that ultimately a lot of liquid gas will flow into Europe and into Germany. Germany has built many liquid gas terminals, and from the end of 2025 onwards, a huge amount of liquid gas will be coming from the US and from Qatar. That should be helpful in normalizing prices.

The caveat is that, on a relative basis, energy costs are likely to stay high. They are still notably higher than before the energy crisis — about twice as high. And they are three to four times higher than in the US.

Do you see competition with China remaining a growth obstacle for the foreseeable future?

Jari Stehn: Yes, I think it will continue to be a headwind. China has moved up in the value chain in terms of the goods that it produces. It used to be more that China would produce lower-value manufactured goods that Germany would import and use as an input for creating high-value manufactured goods that they could sell and capture a big margin in the process. Cars are an obvious example. China is now producing a lot of cars itself that are in direct competition with German-made cars. I don't really see a good reason why that should change anytime soon.

I would also say, though, that Germany has managed to adapt. So even though industrial production is down significantly over the last few years, the amount of value added has actually been much more stable. In other words, German companies have been able to respond by moving out of relatively low-margin production in chemicals or paper, and so on, into higher-value production. I think the way forward essentially is for German companies to continue to do that.

You also write that Germany has by far the most fiscal space amongst major advanced economies. Is it likely to use some of that capacity for additional spending in the next year?

Jari Stehn: In terms of the debt levels, government debt accounts for 64% of Germany’s GDP, almost half of what you're seeing in the US. And the trajectory is very different because that figure is falling in Germany while it’s rising in the US. So there clearly is space.

That said, Germany is constrained by the constitutional debt brake, which allows only for a small bit of borrowing when you adjust the deficit for the cycle. This has led to very tight policy over the last few years, particularly now that you have significant costs related to defense, to Ukraine, and then also to all of these challenges that we talked about, which all need investment to be addressed.

The outgoing government was not able to find a compromise around changing the debt break rule. The issue is that you need a two-thirds majority to do that because it's a constitutional amendment. But we do think that there's a good chance under the new government that you could get agreement on a modification of the rule that would open up some fiscal space.

The economic boost would probably be relatively modest — about half a percent of GDP, or about 20 billion euros a year. We would not expect this amount of investment to immediately turn around the growth picture or affect our 0.3% GDP forecast for next year. It’s probably more of a 2026 or 2027 story.

What else do you expect in terms of new policies once the February elections take place?

Friedrich Schaper: Much of the focus has been on what a government led by the CDU (Christian Democratic Union), which is currently leading in the polls, might prioritize. First, we think a CDU-led government would focus on passing some reforms to improve the competitiveness of the economy. That could include rolling back some of the most recent legislation, including climate-related regulations, to lower taxes for businesses, and especially to focus on lowering energy prices for industry.

Second, we think there will be a push to increase labor market participation. On the one hand, there has been some talk about limiting immigration. But, on the other hand, we think a CDU-led government would focus on improving work incentives, for example, by toughening eligibility criteria for welfare recipients, reducing welfare spending overall, and potentially also raising the retirement age.

Third, we would expect the incoming government to continue to fulfil the 2% NATO target on military spending. We would expect strong support for close transatlantic relations.

Lastly, we would expect some further European integration given the very pro-European agenda of the CDU as a party. However, we would note that the CDU is very skeptical of any further integration that involves some joint liabilities, such as a common deposit insurance scheme or any improvements of the capital markets that would imply joint borrowing.

To stay updated on all economic events of today, please check out our Economic calendar

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Pepperstone

Economic

Central Bank

As expected, the Bank of England’s Monetary Policy Committee stood pat on policy at the final meeting of the year, maintaining Bank Rate at 4.75%, in line with the outcome that money markets had fully discounted in advance of the announcement.

December 2024 BoE Review: Steady As She Goes_1

The lack of policy shifts means that the ‘Old Lady’ has delivered just 50bp of easing in total this year, a considerably more gradual pace of removing policy restriction than that of the Bank’s G10 peers, and some way off the over 150bp of cuts that the GBP OIS curve had discounted at the beginning of the year.

In any case, December’s decision was not a unanimous one. Once again, external MPC member Dhingra dissented in favour of an immediate 25bp cut, cementing her place as the Committee’s resident ‘uber-dove’. Dhingra was, surprisingly, joined in dissent by Deputy Governor Ramsden, and external member Taylor, resulting in a tighter than expected 6-3 vote in favour of a 25bp cut.

Accompanying the decision, as always, was the MPC’s updated policy statement. Largely, this statement was a repeat of that issued after the November meeting. As such, the Committee reiterated that a “gradual” approach to removing policy restriction remains appropriate, and that policy must remain “restrictive for sufficiently long” in order to reduce the risks of inflationary pressures becoming embedded within the economy. Furthermore, the MPC repeated that a ‘data-dependent’ and ‘meeting-by-meeting’ approach will continue to be followed, with particular focus on the “risks of inflation persistence”.

In reaction, the GBP OIS curve repriced marginally in a more dovish direction, as a result of the tighter than expected vote split. As such, money markets now see around a 72% chance of a cut in February, up from around 55% at Wednesday’s close. Furthermore, 22bp of easing is now priced by the end of Q1, from 18bp yesterday, while two 25bp cuts in 2025 are now fully priced back into the curve.

December 2024 BoE Review: Steady As She Goes_2

These policy expectations, and the Bank’s continued reluctance to deliver a more rapid pace of normalisation, are reinforced by this week’s economic data.

While unemployment held steady at 4.3% in the three months to October, both regular pay, and earnings including bonuses, rose by 5.2% YoY over the same period, boosted by the summer’s above-inflation public sector pay awards, which will further boost earnings growth in the November figures. Setting that aside, broader pay pressures remain intense, with earnings growth running at a rate roughly double that which would be compatible with a sustainable return towards the 2% inflation aim.

December 2024 BoE Review: Steady As She Goes_3

Meanwhile, price pressures remain persistent. Headline CPI rose 2.6% YoY in November, 0.2pp above the Bank’s most recent forecast, while core prices rose 3.5% YoY, and services CPI rose by 5.0% YoY, having now been north of that level for the last two and a half years. Progress in eradicating these persistent underlying price pressures has been glacial of late, with some of this progress seemingly starting to be undone. In order to unlock another rate cut, policymakers will be seeking convincing evidence of faster disinflation during the winter months.

December 2024 BoE Review: Steady As She Goes_4

Looking ahead, providing said evidence does indeed present itself, my base case is for the MPC to deliver the next 25bp Bank Rate cut at the February meeting. Beyond this, policymakers are likely to deliver further such cuts on a quarterly basis, likely at meetings which coincide with the release of an updated Monetary Policy Report.

Risks to this base case, though, are tilted towards a more dovish outcome, amid increasing signs of overall economic momentum stalling, and with risks to the labour market tilted to the downside, amid the upcoming changes to National Insurance. Were a greater degree of labour market slack to dramatically reduce overall demand, thus leading to an easing in stubborn services inflation, this could lead to a faster pace of normalisation from the BoE, though firm hints in this direction are unlikely until the second quarter, at the earliest.

The MPC will likely be reluctant to pivot away from the current ‘slow and steady’ stance too soon, particularly as the UK economic backdrop becomes an increasingly stagflationary one, lending further support to the case for ‘gradual’ rate cuts for the time being.

To stay updated on all economic events of today, please check out our Economic calendar

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Warren Takunda

Economic

The U.S. economy grew faster than previously estimated in the third quarter, driven by robust consumer spending.

Gross domestic product increased at an upwardly revised 3.1% annualized rate, the Commerce Department's Bureau of Economic Analysis said in its third estimate of third-quarter GDP on Thursday. The economy was previously reported to have expanded at a 2.8% pace last quarter.

Economists polled by Reuters had forecast GDP would be unrevised. The revision reflected upgrades to consumer spending and export growth, which offset a downward revision to private inventory investment and upward revision to imports.

The economy grew at a 3.0% pace in the April-June quarter. It is expanding at a pace that is well above what Federal Reserve officials regard as the non-inflationary growth rate of around 1.8%.

The U.S. central bank on Wednesday delivered a third consecutive rate cut, but projected only two reductions in borrowing costs next year compared to the four it had forecast in September, citing continued economic resilience and still-elevated inflation.

There are also concerns that some of the incoming Trump administration's policies, including tax cuts, mass deportations of undocumented immigrants and tariffs on imported goods, would be inflationary.

The Fed's policy rate was reduced by 25 basis points to the 4.25%-4.50% range. It was hiked by 5.25 percentage points between March 2022 and July 2023 to tame inflation.

Fed Chair Jerome Powell told reporters on Wednesday that "it's pretty clear we've avoided a recession," adding that "the U.S. economy has just been remarkable, I feel very good about where the economy is ... and we want to keep that going."

Consumer spending, which accounts for more than two-thirds of economic activity, grew at a 3.7% pace. That was revised up from the previously estimated 3.5% rate.

A measure of domestic demand that excludes government spending, trade and inventories increased at a 3.4% pace. Final sales to private domestic purchasers were previously estimated to have risen at a 3.2% rate. Domestic demand increased at a 2.7% pace in the second quarter.

National after-tax profits without inventory valuation and capital consumption adjustments decreased $15.0 billion, or 0.4%. They were previously estimated to have risen $0.2 billion, or unchanged in percentage terms.

When measured from the income side, the economy grew at a 2.1% rate last quarter, lowered from the initially estimated 2.2% pace. Gross domestic income (GDI) increased at a 2.0% rate in the second quarter.

In principle, GDP and GDI should be equal, but in practice they differ as they are estimated using different and largely independent source data. Annual benchmark revisions have sharply narrowed the gap between GDP and GDI.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 2.6% rate. That was revised up from the 2.5% rate reported last month. Gross domestic output grew at a 2.5% pace in the April-June quarter.