The UK economy ended the first half of the year on a positive note, performing better than expected. Consumer spending and business investment picked up in the second quarter and firms were resilient to industrial action. Whether this will be the start of a steady recovery, or if the cheer will prove short lived, as higher rates bite, remains to be seen.
Today sees the release of July data from the Ulster Bank Northern Ireland PMI®. The latest report – produced for Ulster Bank by S&P Global – pointed to a renewed decline in business activity in Northern Ireland as demand continued to falter. Firms continued to increase their staffing levels, however. Meanwhile, a further softening of inflationary pressures was seen at the start of the third quarter.
The MPC delivered the expected rate hike last week, even if the committee itself was far from unanimous. There’s more agreement on the outlook however — muted growth, gradually increasing labour market slack, and continued disinflation are still the prediction.
There was some respite for the UK economy last week, with headline and core inflation falling in June. The news around broader economic activity was slightly less cheery, even if retail sales held up. It seems the private sector’s recovery is losing steam. Enough to limit the Bank of England to a 25bps rise next week, rather than 50?
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Good news on the UK economy remains thin on the ground. Economic output is flat-lining, the labour market is cooling, and credit conditions are set to tighten. Nevertheless, the Bank of England remains focused on taming inflation, even if that means higher re-mortgage costs for households. Growth in the second half will be contingent on how aggressively households rein in spending. A drop in energy bills from this month should offer some solace, but the rest is left to be seen.
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Although the UK economy has fared relatively well in the first half of the year, several headwinds persist, both for short-term and medium-to-longer-term performance. Foremost amongst the latter is the sustained weakness in productivity. Meanwhile the inflation outlook is uncertain with wages and prices still chasing one another upward. With the final destination for interest rates unknown, the hoped for economic ‘soft-landing’ still can’t be banked on.
Continue readingToday sees the release of June data from the Ulster Bank Northern Ireland PMI. The latest report – produced for Ulster Bank by S&P Global – indicated that companies raised activity again, despite a first reduction in new orders since January. Employment also continued to rise. Meanwhile, the recent slowdown in inflation continued at the end of the second quarter, with softer rises in both input costs and output prices recorded.
When I’ve been at summer parties recently, some people have asked me when I’m due. I was beginning to get paranoid about my barbecue belly. But it turns out they were asking me the question de jour – when am I due to remortgage? When is your 2-year or 5-year fix rate deal due to end?
The battle against high inflation is not over yet. Granted, business surveys show prices to be a waning area of concern, as firms now fear muted demand. That seems to be corroborated by a dip in consumer spending. But wages are still on the rise. So barring a minority of dovish voices, the Bank of England’s resolve to bring inflation back to target remains firm. More hikes are coming.
The podcast that keeps you up to date with what is happening economy-wise in Northern Ireland. Telling you what you need to know but not necessarily what you want to hear. It is better to be prepared for the economic environment we are operating in and not the world we would like to be in.
Featuring Siobhan McAleer, Managing Director at The Mortgage Shop.
