In the euro area , April PMIs support our view that a recession will be avoided. That said, resilience in the services sector, along with still elevated services sector price balances,will likely unnerve the ECB. Furthermore, we forecast euro area core HICP inflation to printat 5.4% y-o-y, after 5.7% y-o-y in March (see: April HICP preview ). Ultimately, we believe this continues to support our view that the ECB will raise rates by 50bp at its May meeting.
In the UK , strong wage growth and (core) inflation numbers led to us to revise up our Bank of England rate call. We now expect two further 25bp rate hikes, in May and June, bringing it to a terminal rate of 4.75% by June.

Data Preview

In the euro area , we have some business and consumer surveys, as well as the first release of Q1 2023 GDP. However, more important in our view will be the flash April HICP inflation data for Germany, France, and Spain, which will be paramount in determining the magnitude of the ECB’s May rate hike.
In the UK , all key data ahead of the May Bank of England meeting have already been published. This coming week we have some housing data and activity data from the CBI.
Elsewhere in Europe , we are forecasting the Riksbank to raise its policy rate by 50bp to 3.50% at its April meeting. We will also get GDP data from Sweden and key survey releases on Sweden and Switzerland.

European Economic Outlook

We recently adjusted our growth forecasts and no longer see recessions in Europe. Despite a clear negative supply shock, central banks have been keen to lean against inflation. With official rates already up significantly, plans for future tightening are more nuanced. Both the BoE and ECB have become more data dependent, the ECB after its pre-committed 50bp hike was delivered in March. From here we see the ECB hiking by another 2x50bp plus a final 25bp by July, and the BoE hiking by another 2x25bp in May and June. We thus see peak rates at 4.25% for the ECB (with downside risks) and at 4.75% BoE (with upside risks). We assume rate cuts from both central banks coming a little over a year after the last hike (settling at 2.75% for the ECB and 3.50% for the BoE).


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