- 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%.
UK factory output has fallen sharply to its lowest level in nearly three years, indicating that Bank of England interest rate increases are slowing the economy, according to the latest manufacturing snapshot from the CBI.
Britain's experience with quantitative easing (QE) and monetary policy has had both positive and negative impacts, with the unnecessary prolonged period of cheap money causing damage, the kamikaze printing of money during the pandemic feeding inflation and leaving taxpayers with a large bill, but also some good news as inflation is expected to decelerate and boost spending power as real incomes rise, although second-round effects could ensure inflation's persistence. The UK economy is weak and policy should focus on averting recession and challenging consensus-thinking on future growth, as the country's composite Purchasing Managers Index (PMI) has fallen to a 31-month low, with the services sector slipping into recession and a slump in retail sales in August. Higher interest rates are causing corporate distress, suggesting the need to stop raising rates, while elevated policy rates and selling of gilts by the Bank of England will keep upward pressure on long-term yields and borrowing and mortgage rates. The expectation of positive real interest rates signals the end of cheap money and offers an opportunity in Britain to rethink fiscal and supply-side policy, encouraging investment, innovation, competitiveness, and improved skills. Overall, the outlook is characterized by falling inflation, weak growth, and the opportunity to reset monetary policy and focus on fiscal policy, the supply side, and investment.
Surging interest rates in the UK have led to a slump in factory output, the biggest annual drop in house prices since the global financial crisis, and signals of distress in different sectors of the economy, posing a dilemma for the Bank of England as it decides whether to raise interest rates further.
The 10-year Treasury bond is on course for a third consecutive year of losses, which is unprecedented in 250 years of U.S. history, as the bond's return stands at negative 0.3% so far in 2023 after significant declines in the past two years, due to factors such as rising inflation and interest rate hikes by the Federal Reserve.
The Bank of England may raise interest rates to 5.5% this autumn due to inflation remaining above target, potentially putting further financial strain on homeowners, while households on low incomes will receive cost of living support payments from the government totaling up to £1,350 this year, and the Energy Price Cap has dropped again to £1,923 for the final quarter of the year.
The Federal Reserve has surpassed $100 billion in losses, and experts predict that the losses could potentially double before they start to decrease, as the central bank continues to pay out more in interest costs than it earns from bonds and financial sector services.
