6. The Economy Watch
The Economy Watch is a weekly update dedicated to providing our members with a summary of key economic developments from the previous week. By focusing on Sweden and England, the update serves as a valuable resource for staying informed on economic news and trends.
RIKSBANK MAINTAINS POLICY RATE AT 4.0%
The Riksbank announced the retention of the policy rate at 4.0%. The board acknowledged that prior rate increases have helped alleviate previous pressures on prices, reducing the risk of persistently high inflation. “The policy rate could, therefore, potentially be lowered earlier than indicated in the November forecast. If inflation prospects remain positive, there is a possibility of a rate reduction in the first half of this year,” stated the board. However, the Riksbank cautioned against potential setbacks and underscored the need for careful adjustments in monetary policy. Concerns include the risk of new supply disruptions due to geopolitical tensions, businesses’ pricing behaviour not yet normalising, or the potential for a significant depreciation of the krona.
THE SWEDISH INFLATION IS FALLING—YET LESS THAN EXPECTED
According to fresh data produced by SCB, Swedish inflation is falling. Using the CPI measurement, inflation fell from 5.8% in November to 4.4% in December, its lowest level in nearly two years. However, inflation was still higher than expected for December. Analysts had predicted inflation to be 4.3% in December, according to a collection of prognoses provided by Bloomberg. The fresh inflation numbers lower the expectation of a decrease in the policy rate, writes SVD. The prominent Swedish banks Nordea, Swedbank, and SBAB all expect the Riksbank to announce its first decrease of the policy rate in Maj, while more conservative prognoses expect it to occur in August, writes DN.
THE BANK OF ENGLAND HAS MAINTAINED INTEREST RATES AT 5.25%, YET SIGNALLING REDUCTION
In its recent meeting, the Bank acknowledged discussions about rate cuts, citing the anticipated rapid decline in inflation this year, reports the BBC. The governor emphasised the need for concrete evidence that inflation is under control before considering a rate cut. The Bank has been gradually raising rates over the past couple of years to combat inflation, with the last increase occurring in August of the previous year. However, inflation has sharply declined from its peak in October 2022 and currently stands at 4%. Nonetheless, some economists express apprehension that the decline in the inflation rate towards the Bank’s target is potentially ‘artificial,’ primarily attributed to the reduction in the energy price cap. They anticipate a rebound in inflation during the summer, given the recent increase in global energy prices. Furthermore, the Bank’s survey of numerous companies indicates robust pay growth, with wage settlements projected to rise by 5.4% this year.”
RED SEA CONFLICT MIGHT KEEP INTEREST RATES UNNECESSARILY HIGH
The Chairman of Investor and the Confederation of Swedish Enterprise, Jacob Wallenberg, stated in an interview with SR that the risk of a new inflation shock is apparent due to the events in the Red Sea. The recent Houthi attacks on commercial shipping obstruct the use of the Suez Canal, which will soon heavily affect supply chains. Wallenberg points out that several car manufacturers have already stated the need to pause production due to the disruptions. This will lead to spikes in prices and could also lead to layoffs. The Minister of Finance, Elisabeth Svantesson (M), is also concerned about the development in the Red Sea area and its inflationary effect, noting that it may lead to the need for a tighter monetary policy over time, writes DI.
LAST YEAR SAW THE HIGHEST NUMBER OF BUSINESS BANKRUPTCIES IN ENGLAND AND WALES IN 30 YEARS.
In 2023, over 25,000 company insolvencies were recorded, marking the highest figure since 1993, reports the Insolvency Service. Businesses grappled with increased costs and interest rates, particularly due to higher energy bills and the strain on consumer spending caused by the cost-of-living crisis. The statistics reveal that one in 186 active firms experienced insolvency in 2023. Both Scotland and Northern Ireland reported their highest numbers of company insolvencies since 2012 and 2019, respectively, despite having distinct bankruptcy laws from England and Wales. Insolvency specialist Julie Palmer attributes the surge in business failures to a “perfect storm for financial distress,” fuelled by elevated interest rates, inflation, weak consumer confidence, and escalating input costs. Construction firms are also feeling the impact of a housing market downturn caused by increased interest rates. Closures rose by 7% compared to the previous year, with companies grappling with escalating costs for materials, labour, and borrowing.
VOLVO STOCKS SURGE AS POLESTAR DIVESTS SHARES AMID ELECTRIC CAR CHALLENGES
According to SvD, Volvo Cars witnessed a notable increase in its stock value following the announcement of its decision to sell shares in Polestar and refrain from injecting additional funds into the electric car manufacturer. Despite a slowdown in the electric car market, Deputy CEO Björn Annwall underscored Volvo’s steadfast commitment to its electrification strategy, aiming for an exclusively electric vehicle lineup by 2030. While Polestar faces financial challenges, it is anticipated to seek future funding from its Chinese owner, Geely.
