### Summary
The UK economy is facing inflationary pressures as measures of underlying inflation remain high, leading to expectations of further interest rate rises. However, different sectors of the economy are experiencing mixed fortunes, with some industries booming while others face challenges. The cost of living crisis is far from over, with food price inflation still expected to remain high.
### Facts
- Measures of underlying inflation, such as core inflation, remain stuck at a high rate even as headline inflation falls.
- Services inflation has increased to a joint 31-year high.
- Two-year and ten-year gilt yields have risen to their highest levels since the 2008 financial crisis, indicating market concerns about inflation.
- Some sectors, such as travel firms, hotels, and restaurants, are booming due to increased consumer spending on leisure, while others, like construction firms, are facing challenges due to rising costs.
- Food price inflation is expected to remain in double digits for the rest of the year, contributing to ongoing cost of living pressures.
- Higher interest rates may be necessary to temper economic demand and align it with the reduced supply potential of the economy caused by factors such as fewer workers, trade barriers, and reduced investment.
- Rising interest rates could potentially hamper efforts to improve the economy's productivity.
- The housing market is experiencing a holding pattern, with longer mortgage terms being offered to manage rising interest rates.
- Bank of England governor Andrew Bailey does not consider the housing market situation a "correction" or crisis.
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- Inflationary pressures persist in the UK economy.
- Different sectors of the economy are experiencing mixed fortunes.
- Food price inflation remains high, contributing to ongoing cost of living pressures.
- Interest rates are expected to rise further due to inflation concerns.
- The housing market is in a holding pattern with longer mortgage terms being offered.
- Market conditions and economic recovery remain uncertain.
The surge in mortgage rates has caused housing affordability to reach the lowest level since 2000, leading to a slow fall in the housing market and a potential dip in home prices, although the current market differs from the conditions that preceded the 2008 crash, with low housing inventory and a lack of risky mortgage products, making mortgage rates the key lever to improve affordability.
The end of low interest rates has created a divide between savers who benefit from higher rates and borrowers who face challenges with increased loan costs, affecting various sectors including housing, auto loans, and credit cards.
US consumer spending is showing resilience and robust growth, although signs of a slowdown are emerging, potentially related to the public's perception of a deteriorating financial situation due to high inflation and rising interest rates, despite the fact that households still have higher deposits compared to pre-pandemic levels.
Homebuyers' purchasing power has been negatively impacted by rising mortgage rates, which averaged 7.2% in August, the highest level since 2001, resulting in a decline in existing home sales and a shift towards new-construction homes.
Americans facing high prices and interest rates are struggling to repay credit card and auto loans, leading to rising delinquencies and defaults with no immediate relief in sight, particularly for low-income individuals, as analysts expect the situation to worsen before it improves.
Mortgage rates above 7% are worsening the affordability crisis, limiting younger buyers' ability to purchase homes and causing millennials to lag behind previous generations in homeownership, as rising rates and prices erode buying power.
The U.S. is currently experiencing a prolonged high inflation cycle that is causing significant damage to the purchasing power of the currency, and the recent lower inflation rate is misleading as it ignores the accumulated harm; in order to combat this cycle, the Federal Reserve needs to raise interest rates higher than the inflation rate and reverse its bond purchases.
The Federal Reserve may be the cause of rising housing prices and the low supply of existing homes, which could lead to increased inflation and concerns about the Fed's response to the cost of living. Lowering interest rates and unlocking the supply of homes could help alleviate the issue.
Despite increased household wealth in the US, millions of households are struggling financially due to inflation, high interest rates, and rising living costs, which have led to record levels of debt and limited access to credit.
The Federal Reserve is unlikely to panic over the recent surge in consumer prices, driven by a rise in fuel costs, as it considers further interest rate hikes, but if the rate hikes weaken the job market it could have negative consequences for consumers and President Biden ahead of the 2024 election.
The US economy shows signs of weakness despite pockets of strength, with inflation still above the Fed's 2% target and consumer spending facing challenges ahead, such as the restart of student loan payments and the drain on savings from the pandemic.
New research suggests that elevated interest rates may not have been the main cause of the decline in inflation, sparking a debate about whether the Federal Reserve needs to raise rates again.
US high-yield issuers could face a surge in defaults if inflation continues to accelerate, with a 5% inflation rate potentially causing a full-scale default wave, according to Bank of America Corp. credit strategist Oleg Melentyev.
Rising interest rates caused by the steepest monetary tightening campaign in a generation are causing financial distress for borrowers worldwide, threatening the survival of businesses and forcing individuals to consider selling assets or cut back on expenses.
Potential risks including an autoworkers strike, a possible government shutdown, and the resumption of student loan repayments are posing challenges to the Federal Reserve's goal of controlling inflation without causing a recession. These disruptions could dampen consumer spending, lead to higher car prices, and negatively impact business and consumer confidence, potentially pushing the economy off course.
The Federal Reserve's decision not to raise interest rates has provided little relief for Americans struggling with the high costs of borrowing, particularly in the housing market where mortgage rates have reached their highest level in over two decades, leading to challenges for potential and current homeowners.
High home prices and interest rates have created challenges for young Americans, but the boomer generation has benefited from high home prices and bond yields, making them less affected by the economic cons.
The recent decline in inflation and potential end to interest rate hikes may not solve systemic problems in the housing market, as rising energy prices and high mortgage rates continue to squeeze the market and push house prices down.
Mortgage rates have increased in the past week, and while experts believe rates are unlikely to reach record lows seen during the pandemic, there is a possibility of rates decreasing before the end of the year if inflation continues to moderate. It is advised for homebuyers to focus on improving their credit scores and saving for a down payment to increase their chances of qualifying for the best rate.
The current state of the consumer is concerning as wages are not keeping up with inflation, excess savings from the pandemic have been depleted, and increasing levels of credit card debt are making it difficult to maintain spending levels, leading to potential economic headwinds.
The strength of the US consumer, which has been propping up the economy, is starting to crack due to factors such as student loan payments, soaring gas prices, rising insurance premiums, dwindling personal savings, and potential disruptions like the United Auto Workers strike and a potential government shutdown, raising concerns about a possible recession.
Mortgage rates have surged to their highest level since 2000, posing challenges for prospective homebuyers and potentially worsening the affordability of houses.
Rising interest rates, rather than inflation, are now a major concern for the US economy, as the bond market indicates that rates may stay high for an extended period of time, potentially posing significant challenges for the sustainability of government debt.
The Federal Reserve's acceptance of the recent surge in long-term interest rates puts the economy at risk of a financial blowup and higher borrowing costs for consumers and companies.
The recent rise in interest rates and bond market rebellion against America's debt politics is causing concern, impacting the real economy with higher mortgage rates and a slump in stocks, leading to voters expressing discontent with the Biden economy.
Rising interest rates are having a limited negative impact on businesses and consumers, as strong business and consumer finances help mitigate the effects of higher rates.
Inflation is causing consumers to find certain expenses, such as fast food, streaming services, childcare, concerts, brisket, lattes, going out drinking, new cars, and health insurance, no longer worth the high costs.
Rising interest rates on government bonds could pose a threat to the U.S. economy, potentially slowing growth, increasing borrowing costs, and impacting the Biden administration's priorities and the 2024 presidential election.
New Zealand's major parties are promising cost-of-living relief to voters in the upcoming general election, but they face challenges due to the central bank's insistence on high borrowing costs and subdued growth to control inflation, as well as a deficit, high rents, unaffordable housing, a weakening labor market, and an impending recession.
Higher interest rates pose a greater risk to younger workers and those with lower incomes, potentially exacerbating inequality and impacting the economy, according to a member of the Bank of England's Monetary Policy Committee. Dr. Swati Dhingra has expressed concerns about the household and business impacts of interest rate hikes, warning that the economy's slow growth and the potential for recession may lead to difficult times ahead.
Rising interest rates are posing challenges for first-time home buyers by increasing borrowing costs, limiting inventory, and driving up home prices, according to the President of the Federal Reserve Bank of Philadelphia, Patrick Harker.
Canadian businesses and consumers are feeling the impact of higher interest rates, resulting in reduced spending and subdued sales, although inflation expectations remain high, posing a challenge for the Bank of Canada's upcoming interest-rate decision.
The resilient US consumer and strong job market are boosting consumer spending, which could lead to more Fed rate hikes and upside risks to inflation entering the fourth quarter of 2023.
The rise in mortgage rates due to the Fed's battle against inflation has led to a historic increase in the cost of buying a home, resulting in a significant decline in home-buying demand and a doubling of the typical monthly mortgage payment.
The likelihood of a recession for businesses is high due to increased consumer debt and the impact of high interest rates on buying power.
Inflation can act as a "hidden tax" that erodes purchasing power and pushes consumers into higher tax brackets, but new research suggests that the middle class and the top 1% of Americans have actually benefited from periods of high inflation, while the poor have been hit hard; this has led to a call for a reevaluation of federal policy and the possibility of implementing an inflation tax credit to alleviate the burden on low-income families.
The U.S. housing market is being negatively impacted by "Bidenomics," as mortgage rates reach their highest level since 2000, leading to a decrease in homebuyers and a limited number of homes on the market, while high inflation rates are making it difficult for Americans to afford basic necessities.
Rise in long-term Treasury yields may put an end to historic interest rate hikes that were meant to lower inflation, as 10-year Treasury yields approach 5% and 30-year fixed rate mortgages inch towards 8%. This could result in economic pain for American consumers who will face higher car loans, credit card rates, and student debt. However, it could also help bring down prices and lower inflation towards the Federal Reserve's target goal.
The relentless rise in mortgage rates is impacting affordability for homebuyers, reaching the highest level since December 2000 and potentially adding thousands in additional costs, prompting borrowers to seek competitive rates from multiple lenders.
Rising prices and climbing mortgage rates are making it increasingly difficult for homebuyers to afford a home, as they are borrowing more money at higher interest rates, resulting in weakened financial positions and reduced affordability.
Retailers are facing concerns as interest rates rise and savings dwindle, with low-to-middle income consumers spending their excess savings while high-income consumers still have a significant amount left, according to CFRA Analyst Zachary Warring. Warring recommends stocks that cater to high-income consumers and benefit from a trade-down from middle-income consumers.
Small businesses and investors are feeling the impact of the Federal Reserve's interest rate hikes, with the typical mortgage rate surpassing 8% and credit cards charging record-high interest rates, making it difficult for home buyers to enter the real estate market and leading to a slowdown in housing turnover.
