By Suban Abdulla and David Milliken

LONDON (Reuters) -Britain's economy grew by the most in nearly in three years in the first quarter of 2024, ending the shallow recession it entered in the second half of last year and delivering a boost to Prime Minister Rishi Sunak ahead of an election.

The Office for National Statistics said gross domestic product expanded by 0.6% in the three months to March, the strongest expansion since the fourth quarter of 2021 when it grew by 1.5%.

A Reuters poll of economists had pointed to a 0.4% expansion of gross domestic product in the January-to-March period, after GDP shrank by 0.3% in the final quarter of 2023.

Friday's data will be welcome news for Sunak who said the economy had "turned a corner", although the opposition Labour Party, which has a large lead in opinion polls, has accused Sunak and finance minister Jeremy Hunt of being out of touch to think voters are feeling better off.

"There is no doubt it has been a difficult few years, but today’s growth figures are proof that the economy is returning to full health for the first time since the pandemic," Hunt said.

The Bank of England, which held interest rates at a 16-year high on Thursday, forecast quarterly growth of 0.4% for the first quarter of this year and a smaller 0.2% rise for the second quarter.

Sterling strengthened against the U.S. dollar immediately after the figures were released.

On a monthly basis, the economy grew by 0.4 % in March, faster than the 0.1% growth forecast by economists in a Reuters poll.

Britain remains one of the slowest countries to recover from the effects of the coronavirus pandemic.

At the end of the first quarter of 2024, the country's economy was just 1.7% bigger than its level in late 2019, before the pandemic, with only Germany among the G7 faring worse.

By Naomi Rovnick and Yoruk Bahceli

LONDON (Reuters) -The Bank of England has sent a new signal that borrowing costs will fall earlier and further across Europe than in the United States, setting markets up for major shifts as investors play a monetary policy divide opening up across the Atlantic.

Investors see European stocks and debt leading global markets this year as rate cuts boost spending, softer inflation burnishes bonds and weaker currencies lift exports.

Traders stepped up bets for UK easing after the BoE on Thursday held rates at 16-year highs of 5.25% but trimmed inflation forecasts, pushing sterling down and stocks higher.

That came after Sweden cut rates for the first time since 2016, while Switzerland cut rates in March and the European Central Bank has flagged a June cut. In contrast, the U.S. Federal Reserve is set to keep rates high for longer.

"This is the European pivot," said Florian Ielpo, head of macro at Switzerland's Lombard Odier Investment Management, who is positive on European and UK stocks. Since 2020, the United States has generated the lion's share of global equity gains.

Paul Flood, multi-asset portfolio manager at Newton Investment Management, said he was buying UK stocks on valuation grounds and was positive on UK government bonds because there was more potential for BoE rate cuts ahead.

DOVES FLY

Britain's exporter-focused FTSE 100 hit a new record high after the BoE meeting. Europe's Stoxx 600 index is up 2% so far this week, poised for its best week since January.

Money markets are pricing in around 55 basis point (bps) of BoE rate cuts in total by year-end, 70 bps from the ECB and just 43 bps from a Fed still grappling with strong inflation.

Economists polled by Reuters expect the U.S. economy to expand by 2.5% this year, versus 0.5% in the euro zone and 0.4% in the UK, as lavish government spending dubbed "Bidenomics" spurs investment but raises debt and the deficit.

In terms of growth momentum, investors see Europe doing better, boding well for assets in the region over the longer term.

"Europe is really accelerating, albeit from a weaker base at a time where the U.S. economy is cooling from a stronger starting point," said Hugh Gimber, global market strategist at J.P. Morgan Asset Management.

Investors are querying whether the U.S. will run out of steam, other strategists said.

But in the short term, if the U.S. can run up its debt and its deficit, then rates in the US will likely stay higher than in Europe, said Societe Generale (OTC:SCGLY) strategist Kit Juckes.

RISKY PIVOTS

European government bonds could outperform the U.S. but are likely to stay volatile as the inflation path worldwide remains unpredictable, investors and analysts said.

The BoE, the ECB and other European central banks might regret sounding too dovish too soon, Lombard Odier's Ielpo said.

In the U.S., the Fed sent a strong signal in December that rate cuts were coming but then turned more hawkish after financial conditions became euphoric and inflation stalled above its target.

UK gilts have lost investors 3.1%, this year, compared with 2.1% losses in the U.S. and 1.2% in the euro zone, based on LSEG data.

BlueBay Asset Management portfolio manager Neil Mehta said the firm does not like bonds in the UK, partly because of relatively high inflation.

The yield on Britain's rate-sensitive two-year gilt slipped 3 bps after the BoE decision to 4.28% as debt prices firmed slightly.

The BoE last diverged significantly from Fed policy in August 2016, when it cut rates by a quarter point to insulate the economy from Brexit while the Fed was on hold and preparing to raise.

The ECB was a holdout dove with rates below zero from 2014 to 2022 but has followed the Fed since.

The divergence theme would mostly play out in currency markets, Mehta added, with the dollar staying strong, in a further risk for inflation in Europe as import prices rise.

The euro is down 2.6% so far this year to $1.07, Sterling is down roughly 2%.

Matthew Swannell, economist at BNP Paribas (OTC:BNPQY), said this was not a particular risk for UK, whose biggest trading partner is the European Union.

"So we do think the Bank of England can move before the Federal Reserve, and likewise the ECB (can too)," he said.

By Ashitha Shivaprasad

(Reuters) - Gold prices firmed on Friday, poised for their best week since April 5, following recent economic data that boosted bets of an interest rate cut from the Federal Reserve.

Spot gold gained 0.2% at $2,350.87 per ounce by 0212 GMT after hitting a more than two-week high earlier. Prices have risen 2.2% so far this week.

U.S. gold futures rose 0.7% to $2,356.90.

Data on Thursday showed that the number of Americans filing new claims for unemployment benefits increased more than expected last week.

"Gold has regained its mojo this week courtesy of some softer U.S. macro data. Initial jobless claims figures were worse than expected, which comes hot on the heels of the weaker NFP (nonfarm payrolls) figures last Friday, indicating that the jobs market may be starting to loosen up," said Tim Waterer, chief market analyst at KCM Trade.

Traders expect the Fed to start its easing cycle in September. Lower interest rates reduce the opportunity cost of holding gold.

The inflation reports have the potential to shift the "needle with regards to the expected rate cutting timeline," if inflation is shown to be edging lower, gold could be a beneficiary, Waterer added.

The U.S. producer price index and consumer price index data are due next week.

There is "considerable" uncertainty about where U.S. inflation will head in the coming months, San Francisco Fed President Mary Daly said on Thursday.

Elsewhere, a senior Israeli official said the latest round of indirect negotiations in Cairo to halt hostilities in Gaza had ended and Israel would proceed with its operation in Rafah.

Spot silver was up 0.2% to $28.38 per ounce and was set to register its best week since April 5.

Platinum firmed 0.6% to $983.78 and palladium rose 0.5% to $971.50. Both metals were set for weekly gains.

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WASHINGTON (Reuters) -U.S. President Joe Biden is set to announce new China tariffs as soon as next week targeting strategic sectors, according to a person familiar with the matter.

The full announcement, which could take place as soon as Tuesday, is expected to largely maintain existing levies, according to the person. An announcement could also be pushed back, the person said.

Details on the precise value or categories of tariffs that would be imposed were sketchy, but the administration was said to have zeroed in on areas of interest within strategic competitive and national security areas, the person said.

Biden, a Democrat seeking re-election in November, is looking to contrast his approach with that of Republican candidate Donald Trump, who has proposed across-the-board tariffs.

Specific sectors were set to include electric vehicles, batteries and solar equipment, according to Bloomberg News, which first reported the story.

The measures could invite retaliation from China at a time of heightened tensions between the world's two biggest economies.

In 2022, Biden launched a review of the Trump-era policy under Section 301 of the U.S. trade law. Last month, he called for sharply higher U.S. tariffs on Chinese metal products.

The Biden administration has also been pressuring neighboring Mexico to prohibit China from selling its metal products to the United States indirectly from there.

The White House declined to comment while the office of the U.S. Trade Representative did not immediately respond to a Reuters request for comment.

TOKYO (Reuters) - Japan's consumer spending kept shrinking for a 13th straight month in March, government data showed on Friday, creating challenges for policymakers seeking to engineer self-sustaining economic growth and normalise monetary policy.

Household spending fell 1.2% in March from a year earlier, the data showed, against economists' median forecast for a 2.4% drop and following a 0.5% decline in February.

On a seasonally adjusted, month-on-month basis, spending increased 1.2%, versus an estimated 0.3% contraction and a 1.4% rise in February.

Separate data from Thursday showed Japanese real wages in March shrank for two straight years, as the rising cost of living outpaced nominal wages.

Weak household consumption is a source of concern among Japanese policymakers who want to see sustained economic growth led by strong wage hikes and solid consumer spending.

(Reuters) - Morgan Stanley said it now expects the U.S. Federal Reserve to start lowering interest rates from September, compared to its earlier forecast of July, while continuing to see three 25-basis-point rate cuts through the year.

"A reversal in key components points to disinflation ahead, but given the lack of progress in recent months it will take a bit longer for the FOMC to gain confidence to take the first step," the brokerage said in a note on Tuesday.

By Klaus Lauer

BERLIN (Reuters) - Germany's economy will stagnate in 2024 despite a stronger than expected start to the year, and will continue to lag behind European peers, according to German economic institute IW.

Manufacturing and the construction sector in particular remain stuck in recession, according to IW's latest forecasts, which Reuters is first to report and will be published later on Wednesday.

Consumption will be the only bright spot as it picks up as inflation eases.

"That's not enough for a real upswing. In addition to consumption, investments must finally get going," said IW economist Michael Groemling. "Huge gaps (in investment) have now developed."

Investment is depressed due to the geopolitical situation and high interest rates making financing more expensive.

The German economy shrank by 0.2% last year, the weakest performance among big euro zone economies, as high energy costs, lacklustre global orders and record high interest rates took their toll.

IW forecasts 0% growth for Europe's biggest economy this year, lagging again as France, Italy, Britain and the United States are all expected to expand.

At the start of this year, Germany skirted a recession, growing by 0.2% in the first quarter from the previous three-month period in adjusted terms. In the last quarter of 2023, the economy shrank by 0.5%.

The German government forecasts 0.3% GDP growth this year.

"What is needed is a policy boost that improves business conditions," said Groemling. "If nothing changes, we will continue to squander our potential."

According to the IW estimates, foreign trade will remain weak and hardly provide any economic stimulus this year.

Germany's unemployment rate is likely to increase to 6% on average for the year from 5.7% in 2023, according to IW.

"Despite the record number of 46 million employed people on average in 2024, the effects of the economic weakness on the labour market in Germany are becoming more visible," Groemling added.

By Tingshu Wang, Laurie Chen, Kevin Yao and Farah Master

BEIJING/HONG KONG (Reuters) - After three decades selling homemade buns on the streets of the Chinese city of Xian, 67-year-old Hu Dexi would have liked to slow down.

Instead, Hu and his older wife have moved to the edge of Beijing, where they wake at 4 a.m. every day to cook their packed lunch, then commute for more than an hour to a downtown shopping mall, where they each earn 4,000 yuan ($552) monthly, working 13-hour shifts as cleaners.

The alternative for them and many of the 100 million rural migrants reaching retirement age in China over the next 10 years is to return to their village and live off a small farm and monthly pensions of 123 yuan ($17).

"No one can look after us," said Hu, still mopping the floor. "I don't want to be a burden on my two children and our country isn't giving us a penny."

The generation that flocked to China's cities at the end of last century, building the infrastructure and manning the factories that made the country the world's biggest exporter, now risks a sharp late-life drop in living standards.

Reuters interviewed more than a dozen people, including rural migrant workers, demographers, economists and a government adviser, who described a social security system unfit for a worsening demographic crisis, which Beijing is patching rather than overhauling as it pursues growth through industrial modernisation. At the same time, demand for social services is growing rapidly as the population ages.

"The elderly in China will live a long and miserable life," said Fuxian Yi, a demographer who is also a senior scientist at University of Wisconsin-Madison. "More and more migrant workers are returning to the countryside, and some are taking low-paid jobs, which is a desperate way for them to save themselves."

If these migrants were to rely solely on China's basic rural pension, they would live on less than the World Bank's poverty threshold of $3.65 a day, though many supplement their earnings by labouring in the cities or by selling some of their crop.

China's National Development and Reform Commission, the human resources and civil affairs ministries and the State Council did not respond to faxed requests for comment. 

China's latest statistics showed some 94 million working people - around 12.8% of China's 734 million labour force - were older than 60 in 2022, up from 8.8% in 2020. 

That share, while lower than in wealthier Japan and South Korea, is set to skyrocket as 300 million more Chinese reach their 60s in the coming decade.

A third of this cohort are rural migrants, who typically lack the professional skills for an economy aspiring to move up the value chain.

The main reason China has not built a stronger safety net for them is that policymakers, fearing the economy might fall into the middle-income trap, prioritise growing the pie rather than sharing it, the government adviser told Reuters.

To achieve that, China is directing economic resources and credit flows towards new productive forces, a catch-all term for President Xi Jinping's latest policy push for innovation and development in advanced industries such as green energy, high-end chips and quantum technology.

U.S. and European officials say this policy is unfair to Western firms competing with Chinese producers. They have warned Beijing that it stokes trade tensions, and that it diverts resources away from households, suppressing domestic demand and China's future growth potential.

China, which has rejected those assessments, has instead focused on upgrading production, rather than consumption, as its desired path toward prosperity.

"It would be easier to solve the equality problem if we could first solve the productivity growth problem," said the adviser, granted anonymity to speak freely about pension-policy debates happening behind closed doors.

"People have different views" on whether China can make that leap in productivity, the adviser said. "Mine is that it may be difficult if we do not reform further and remain at odds with the international community."

'VESTED INTERESTS'

Pensions in China are based on an internal passport system known as hukou, which divides the population along urban-rural lines, creating vast differences in incomes and access to social services.

Monthly urban pensions range from roughly 3,000 yuan in less-developed provinces to about 6,000 yuan in Beijing and Shanghai. Rural pensions, introduced nationwide in 2009, are meagre.

In March, China increased the minimum pension by 20 yuan, to 123 yuan per month, benefitting 170 million people.

Economists at Nomura say transferring resources to the poorest Chinese households is the most efficient way to boost domestic consumption.

But the rural pension hike amounts to an annual effort of less than 0.001% of China's $18 trillion GDP.

China's Academy of Social Sciences (CASS) estimates the pension system will run out of money by 2035.
 

Beijing has introduced private retirement schemes and is transferring funds to provinces with pension budget deficits which they cannot replenish themselves due to high debts. 

Other countries have tried to increase pension funding by lifting the retirement age. In China, it is among the lowest in the world at 60 for men and 50-55 for women depending on their line of work.

Beijing has said it plans to raise the retirement age gradually, without giving a timeline.

Government concerns that the population would perceive raising the threshold as benefiting "vested interests" at the expense of ordinary citizens are holding up the implementation of those plans, the adviser said.

Chinese think "officials want to retire later to fatten up their own pensions," he said.

POVERTY THREAT

CASS surveys show the level of healthcare funding for urban workers was in some cases about four times higher than for those with a rural hukou.

"There aren't enough social services to solve the problems of these people, who are prone to falling back into poverty," said Dan Wang, chief China economist at Hang Seng Bank. 

More than 16% of rural residents older than 60 were "unhealthy", compared with 9.9% in the cities, according to an October article by Cai Fang, a CASS economist and former central bank adviser, published in the Chinese Cadres Tribune, a Communist Party magazine.

Sixty-year-old Yang Chengrong and her 58-year-old husband Wu Yonghou spend their days collecting piles of cardboard and plastic for a recycling station in Beijing, earning less than one yuan per kilogram. 
 

Yang said she has heart issues, while Wu has gout, but they can't afford treatment. They fear their 4,000 yuan monthly income is unsustainable as "people consume and waste less."

"Villagers like us work ourselves to near-death, but we must keep working," said Yang, her shoulders covered in snow after a day of scavenging.

Wu, next to her, said they do not dare to retire.

"I only feel secure if I have work, even if it's dirty work," he said.

Traditionally in China, children had been expected to support the elderly.

But most of those retiring in the coming decade, a group almost as large as the entire U.S. population, only had one child due to birth limits enforced from 1980 to 2015.

High youth unemployment compounds the problem.

"Relying on families for elderly care is no longer feasible," Cai wrote in his article.

The silver lining for some of the elderly is that younger Chinese, despite struggling to find the services jobs they went to university for, reject hard labour.

"The mall can't find younger people," said Hu, the cleaner. "As long as I can still move, I'll keep working."

($1 = 7.2448 Chinese yuan renminbi)

By Leika Kihara and Satoshi Sugiyama

TOKYO (Reuters) - Japanese Finance Minister Shunichi Suzuki said on Wednesday authorities were ready to respond to excessively volatile moves in the exchange-rate market.

"It's desirable for currency rates to move stably reflecting fundamentals. Excessive volatility is undesirable," Suzuki told parliament.

"We will continue to monitor currency market developments carefully, and stand ready to respond with all means available," he said.

Suzuki also said authorities were not looking at specific yen levels in deciding whether to take action. He declined to comment on what he deemed as excessively volatile moves.

(Reuters) - Argentina has a new largest banknote, the 10,000 peso, which is five times the size of the previous top bill but still only worth around $10 as the South American country grapples with the world's highest inflation rate that is nearing 300%.

The embattled country's central bank launched the new note on Tuesday, which it said will be rolled out gradually and features independence icons Manuel Belgrano and Maria Remedios del Valle, who were featured on previous smaller bills.

The bank said that the 10,000 peso note, along with an even larger 20,000 peso bill that would come into circulation near the end of the year, would "facilitate transactions between users", simplify financial system logistics and cut costs.

Argentina's triple-digit inflation and steadily depreciating peso currency has over years drained the value of the local tender, leading to a situation where people often carry huge stacks of cash with them to cover costs.

The current top 2,000 peso bill is worth just over $2 at the official exchange rate, far less valuable than the largest note in countries around the region and beyond. The 10,000 note is worth $11 at the official rate but just $9 at freely-accessible parallel rates used to get around strict capital controls.

New libertarian President Javier Milei, who took office in December, is trying to clean up an economic crisis he inherited after years of failure by governments on the left and right to stabilize the grains producing country's financial position.

His tough austerity measures and cost-cutting have helped lower monthly price rises faster than anticipated, even as annual inflation remains sky-high. That's let the central bank cut interest rates significantly over recent months.

($1 = 880.5000 Argentine pesos)