- The Bank of England raised its benchmark interest rate to 5.25% despite a slowdown in consumer-price rises, leading to speculation about when the central bank will end its monetary tightening.
- House prices in Britain fell by 3.8% in July compared to the same month last year, the sharpest decline since July 2009, but the average house price was still higher than earlier this year.
- The Bank of Japan raised its cap on the yield of Japanese ten-year government bonds from 0.5% to 1%, causing the yield to soar to nine-year highs.
- Turkey's annual inflation rate increased to 47.8% in July, the first rise since October, due in part to a new tax on fuel.
- The euro area's economy grew by 0.3% in the second quarter, with much of the growth attributed to changes in intellectual property shifting by multinationals based in Ireland for tax purposes. Germany's GDP growth rate was zero, and Italy's fell by 0.3%.
### Summary
The UK is experiencing mixed economic news, with wage increases, falling inflation, and lower food prices, but core inflation remains high. The Bank of England is expected to raise interest rates in September. Meanwhile, the government is providing support payments to eligible households, and usual state benefits will be paid in September. The Energy Price Guarantee has expired, and consumers will now pay the Energy Price Cap rate, which has decreased but is still higher than pre-pandemic levels.
### Facts
- 💰 The UK saw wage increases, falling inflation (excluding volatile food and energy prices), and lower food prices in mid-August.
- 💸 Core inflation remains high at 6.9%, indicating that any economic gains may be offset by higher borrowing costs.
- 🏦 The Bank of England is likely to raise interest rates from 5.25% to 5.5% in September to address high inflation.
- 💷 The government is providing support payments to eligible households, including means-tested benefits claimants, people with disabilities, and pensioners.
- 💳 Usual state benefits and pension payments will be delivered as normal in September with no bank holidays.
- 💡 The Energy Price Guarantee has expired, and consumers will now pay the Energy Price Cap rate, which has decreased to £2,074 for Q3 2023.
- ⬇️ Wholesale energy prices have dropped, leading consultancy firm Cornwall Insight to predict further decreases in October. However, prices are expected to remain above pre-pandemic levels for the foreseeable future due to geopolitical incidents and the UK's reliance on energy imports.
Vacancies and starting salaries in the UK fell in July for the first time this year, indicating a decrease in inflationary pressure in the labor market.
Core inflation in the UK may continue to remain high and volatile due to the implementation of Brexit, discrepancies in wage growth, the direct effects of Brexit on prices, and fiscal policy challenges, which could result in higher and more unpredictable inflation compared to the US and euro area.
Prices in British shops have risen at their slowest rate since October, with a 6.9% increase in the year to August, due to rising costs of meat, potatoes, and cooking oil, as well as a reduction in grain exports from Ukraine and export restrictions on rice from India, according to the British Retail Consortium.
Australia's inflation rate dropped to its lowest level in 17 months, driven by lower prices for fresh produce and automotive fuel, reducing the likelihood of the Reserve Bank raising interest rates; however, inflation in electricity prices remained high.
German inflation fell slightly in August, but economists predict that the downward trend will continue in the coming months, with food prices showing above-average growth.
British factories in August experienced their weakest month since the start of the COVID-19 crisis due to shrinking orders caused by rising interest rates, according to a survey, resulting in a decline in purchasing activity, inventory holdings, and staffing levels. However, the slowdown in domestic and export demand has alleviated inflation pressures, potentially leading to a decrease in goods price inflation. With the economy showing signs of a slowdown, the Bank of England is expected to raise rates for the 15th consecutive time, despite concerns that it may lead to a recession.
UK inflation has slowed to a 17-month low of 6.8%, prompting expectations of potential interest rate cuts and concerns about the impact on house prices and mortgage rates.
British house prices have fallen at the fastest pace since 2009, with a 4.6% decrease in the past year, due to the impact of higher interest rates, according to mortgage lender Halifax.
Inflation has decreased significantly in recent months, but the role of the Federal Reserve in this decline is questionable as there is little evidence to suggest that higher interest rates led to lower prices and curtailed demand or employment. Other factors such as falling energy prices and the healing of disrupted supply chains appear to have had a larger impact on slowing inflation.
The British public's long-term inflation expectations rose in August, posing a challenge for the Bank of England, which is expected to raise interest rates later this month.
Wage growth in the UK has caught up with rising prices, resulting in real pay no longer falling, according to official figures, although the unemployment rate has risen and job vacancies have fallen. The data will also impact the state pension, which is set to increase by 8.5% next April.
Americans' overall views on inflation remained unchanged in August, despite predictions of rising prices for rent, homes, and food, and a downgrade in their personal financial situations, according to the New York Fed's Consumer Sentiment Survey.
The Consumer Price Index is expected to show an increase in inflation in August, with headline inflation rising to 3.6% and core inflation easing to 4.4%, but the market is accustomed to this trend and the Federal Reserve is unlikely to change its rates at the upcoming meeting.
British grocery inflation fell to its lowest level in a year in September, with prices rising fastest in products such as eggs, sugar confectionery, and frozen potato products, providing some relief for consumers and the government.
UK gross domestic product (GDP) fell by 0.5% in July, below expectations, with services output being the main drag on the economy, indicating a potential mild recession, and causing investment banks to revise down their growth forecasts; however, some experts still believe that the economy is growing, albeit at a slower pace.
Inflation is expected to fall below the Federal Reserve's 2% target by late next year, despite a recent rise in consumer prices driven by increased energy costs.
Despite claims by the Biden administration and corporate media that inflation is decreasing, the latest consumer price index from the Bureau of Labor Statistics shows that Americans paid 3.7 percent more for basic consumer items in August compared to the previous year.
Inflation in the US accelerated for the second consecutive month in August due to rising costs of rent and gasoline, with the consumer price index rising 0.6% from the previous month and 3.7% from the same time last year.
Gasoline prices rose 10.6% in August, contributing to the biggest monthly increase in U.S. consumer prices this year, but the overall inflation outlook remains optimistic as gas prices are expected to fall in the coming months. Core inflation, excluding food and energy prices, also increased, but analysts believe it is just a temporary bump and the overall trend is still heading in the right direction.
August inflation rose to 3.7%, the highest month-to-month increase since June 2022, driven by rising gas prices, which accounted for over half of the rise, while prices for shelter and food remained elevated; however, the Federal Reserve's reaction to the data is uncertain as there are signs of prices moderating but also concerns over inflation remaining too high.
The annual rate of inflation in the eurozone has been revised down to 5.2% for August, but it remains well above the European Central Bank's 2% objective despite a decrease in consumer prices.
UK inflation is projected to average 7.2% in 2023, the highest rate among advanced economies, according to the Organisation for Economic Co-operation and Development (OECD), which also raised its forecast for UK inflation.
UK inflation unexpectedly dips to 6.7% in August, sparking speculation of a pause in interest rate hikes from the Bank of England.
Inflation in Britain slowed for a third consecutive month in August, defying expectations of a rise due to higher fuel prices, with consumer prices rising 6.7 percent compared to the previous year, driven by slower increases in food prices and a decline in hotel room costs. Core inflation also fell more than anticipated, indicating a potential easing of inflationary pressures, though price growth remains uncomfortably high. The Bank of England is set to announce its decision on interest rates, with growing speculation that rates may be held steady due to signs of slowing inflation and a weak economy.
Euro zone annual inflation dropped to its lowest level since October 2021, falling to 4.3% in September, while core inflation decreased to 4.5%, prompting uncertainty over potential rate cuts by the European Central Bank.
The Federal Reserve's preferred measure of inflation decreased in August, indicating that efforts to combat inflation are progressing, although there are still price growth pressures that could lead to further interest rate hikes by the central bank.
Consumer spending in the US increased by 0.4% in August, while core inflation fell below 4.0% for the first time in over two years, potentially reducing the likelihood of an interest rate hike by the Federal Reserve.
Food prices in the UK dropped in September for the first time in almost two years, providing some relief to consumers amid the cost of living crisis, as a result of price reductions for dairy, margarine, fish, and vegetables and fierce competition among supermarkets, although overall food prices are still higher than a year ago.
Supermarket competition in the UK has led to the first monthly drop in food prices in over two years, with prices down 0.1% in September, according to the British Retail Consortium (BRC). The BRC also reported that grocery inflation fell to 9.9% in September, down from 11.5% in August, while overall shop price inflation decreased to 6.2%. Although prices are still rising, the rate of inflation is slowing, providing some relief for households. However, the BRC warned of potential risks such as high interest rates, climbing oil prices, and supply chain disruption.
Consumers perceive inflation as much higher than official figures indicate at the moment, largely due to sharp increases in the price of things like restaurant dining, hotel accommodation, and gasoline.
India's retail inflation is expected to drop below 6% in September due to cooling prices for essential commodities, although food inflation stood at around 10% in August.
The U.S. government's upcoming inflation report is expected to show a cooling off of inflation, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, and core inflation expected to be up 4.1% from September last year, indicating slower price increases in September than in August.
Inflation is at 3.7% despite efforts to lower it to 2.0%, and retailers are using tricks like percentage discounts to hide the true value of discounts from consumers.
Consumer sentiment in the US fell to its lowest level since May, with Americans' expectations for inflation over the next year reaching the highest level since April, potentially leading to higher price pressure.
Persistently high inflation in the US has led to a 7% decrease in consumer sentiment in October, with concerns over inflation impacting personal finances and expectations for future inflation rising to 3.8%.
Headline inflation is expected to have eased in September, while pay growth is slowing, with economists predicting that annual inflation fell slightly to 6.5% from 6.7% in August, although it still remains well above the Bank of England's 2% target, and the jobs market weakening and reducing the need for employers to increase wages.
Average pay growth in the UK has surpassed inflation for the first time in almost two years, indicating a potential easing of living costs, with wages rising at an annual rate of 7.8% between June and August, outpacing average inflation over the same period. However, there remains a significant disparity between public and private sector pay, and while inflation is slowing, it still remains above the Bank of England's target.
Food prices fell in September for the first time in two years, but fuel prices increased sharply, resulting in an overall inflation rate of 6.7%; however, wages outpaced inflation for the first time in almost two years, alleviating some financial pressure for households.
The inflation rate in Britain remained steady in September, defying expectations of a small decline, due to a rise in fuel prices offsetting a slowdown in food inflation.
UK inflation remains unchanged at 6.7% in September, raising doubts over Rishi Sunak's pledge to halve inflation by the end of the year, as rising fuel prices offset the first monthly fall in food prices in two years.
UK inflation unexpectedly holds at 6.7% in September, keeping the possibility of another interest rate hike alive, driven by a rise in petrol prices and robust core inflation and services prices.
