The US economy is motoring along, driven by recent tax cuts, keeping the Fed on course for further gradual tightening in coming months. However, signs of weakness in the Euro area mean a rate hike is some way off.
Good news for the consumer. Not only have average UK earnings posted their largest rise since 2009 but inflation fell more than expected, boosting hopes the recent real income squeeze is coming to an end.
UK growth has picked up a bit of speed in Q3, judging from latest monthly GDP figures, with strength widespread. However, recent favourable weather flattered the headline rate, so a moderation in growth looks likely in Q4.
Latest monthly UK PMI surveys were upbeat, hinting at firmer Q3 GDP. Increasing skill shortages suggest a pick-up in wage growth in coming months, supportive for cash strapped consumers.
The UK recovery remains imbalanced. Consumer spending rebounded in Q2 but investment weakened. Ongoing Brexit uncertainty continues to overhang the corporate sector.
Stronger than expected UK inflation data increases the odds of another modest BoE rate hike next year, but the impasse in latest EU/UK Brexit talks means a BoE move is unlikely before spring 2019, at the earliest.
As expected the BoE kept its powder dry following August’s rate hike. Meanwhile, the ECB remains on course to halt QE by year-end but tame inflation suggests a rate hike is some way off. In contrast, the Fed looks odds on to tighten policy further later this month.
The US economy is humming and wage pressures are building, keeping the Fed on track for another modest tightening in September. UK growth, however, remains lacklustre with manufacturing in the doldrums. A BoE rate hike appears a distant prospect.
A fresh Parliamentary term but the top agenda item is most definitely familiar. Brexit will again be all-consuming in the coming months, and far beyond.
The UK’s encouraging fiscal position provides Chancellor Hammond with more room for manoeuvre in his upcoming autumn statement.