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.
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.
Continue readingBoris Johnson fired the starting pistol for a major jab fest over the next three weeks in what could be dubbed the jab before the storm. It comes at a time when the UK’s recovery appears to have stalled in October as firms struggled with supply chain problems and staff shortages even pre-Omicron. Reintroduction of restrictions to curb spread of Omicron, will hit travel and hospitality sectors the hardest again. October’s slowdown will further complicate monetary policy dilemma, and the prospects of a delaying a rate hike this week are strengthening.
Data releases are sending out mixed signals to the Bank of England’s MPC. On the one hand, there is rising evidence of growth slowing in Q3 as consumers turned cautious and firms struggled with supply-side shortages. Yet the labour market continues to recover rapidly with any slack declining fast. The latter could push up wages for longer, risking a firming up inflation expectations.
As the data points to the initial post-Covid economic liftoff continuing, attention has turned squarely to limiting further economic fallout and encouraging the recovery. Last week Chancellor Sunak targeted support at the jobs market. This week European leaders meet to approve a proposed €750bn coronavirus recovery package. Expect plenty more in the coming months as the scale of the recovery challenge becomes ever more apparent.
Continue readingAn unexpected decline in April GDP, driven by sharply weaker manufacturing activity, has increased the risks of UK growth stagnating, or even contracting, in Q2 2019. Still, continued favourable labour market conditions remain a key support for the resilient consumer, lessening the risks of a more pronounced downturn.
Following the recent Grieve amendment, the chances of Parliament passing PM Theresa May’s Withdrawal Agreement tomorrow look very slim. A rejection would force Mrs May to unveil a Plan B next Monday. An array of outcomes is possible with an increasing chance of Article 50 being extended.
UK GDP growth picked up in Q3 but this bounce is likely to be fleeting, judging from latest downbeat business surveys.
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.
