Top 3 Economic Stories This Week

The Last Central Bank Communications of 2025

Central banks final communications of the year came in this week - and they largely used them to reinforce their discipline in policy setting and caution, pushing back against many investors beliefs that their will be rapid policy easing in early 2026. In the U.S., the UK and Europe, policymakers stressed that while inflation has eased, victory in such economies has not yet been secured if you will, particularly in areas such as services inflation. Bond markets reflected the stance that rates will continue to remain restrictive in the new tear as yields remained elevated and investors were reluctant to price aggressive rate cuts.

Year-End Economic Data Interpreted

More economic data to look at and analyse this week as we interpret the newly released PCE inflation, PMI business surveys, and labour market data. Such late year economic data has suggested that labour markets show signs of easing as hiring has slowed down and wage growth remains moderate - without any sort of sharp swings in unemployment (which could be due to the growing gig economy). The combination of cautious consumer spending that data has displayed and a slowing labour market, could support the idea that economies are slowing gradually - with analysts strongly arguing that the outlook is one of stability under constraint rather than one that is looking down the barrel of any sort of recession.

Investors Decide on Defensive Year-End Positioning

As liquidity thins ahead of Christmas, many investors have moved towards lower risk positions, favouring quality assets over those which seem to be overvalued. We saw reduced volatility in equity markets this week due to traders avoiding any sort of large bets before year-end. As the year closed, the theme of the markets was largely that of investors looking to preserve their capital rather than maximise their returns.

Policy Pulse: Fiscal Policy Impact

On policy pulse, we talk a lot about monetary policy and central bank strategy - this week I thought it could be interesting to look at the impact fiscal policy is having on economies. As the year draws to a close, some analysts have argued that the U.S., and the UK are both in a situation where their fiscal policy is dragging on economic activity. In the UK, analysts point towards behaviour and reduced confidence after the budget as a factor in their line of reasoning - with early behavioural responses slowing growth ahead of any sort of official implementation of policies. In the U.S., economists question the lack of support that fiscal policy is offering, as government spending growth has moderated. Subsequently, the U.S. economy has become more reliant on demand within the private sector to sustain growth. On the other hand, some analysts are arguing that in both the U.S., and the UK labour markets remain resilient as unemployment is low and wage growth continues to support incomes. Although consumer spending has cooled in both economies, it certainly hasn't collapsed, meaning that economic activity remains healthy.

Industry Spotlight: Retail & Consumer Behaviour Running Up To Christmas

While some saw the final full week of shopping before Christmas a panic to make sure all gifts had been arranged, economists saw it as a real-time test of household resilience after a year full of high rates and fiscal tightening. Of course, retail activity held up during this week, you'd expect it to - but spending patterns were highly selective, and those purchases that involved value, promotions and essentials were certainly prioritised. Demand certainly therefore can be thought of as price sensitive (or elastic for some goods) as discounting played a key role in driving sales. This is important to analyse as such consumer behaviour suggests that households are still spending and having the capacity to do so as well, but its key to remember that it was mainly with caution and intent, rather than splurging freely. This once more supports the view that consumption may be slowing but it's certainly not collapsed.