- 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.
### 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.
### emoji 📈💼💸🔒🔺💰
- 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.
### Summary
House price inflation in Britain slowed in June, with the exception of London, as high mortgage rates deter buyers. Meanwhile, in the US, policymakers are divided over the need for more interest rate hikes, and China's central bank cut a key interest rate due to economic risks.
### Facts
- 💰 Average UK house prices increased by 1.7% in June, down from 1.8% in May, with London being the only region where property prices fell by 0.6%.
- 💸 Policymakers in the US are divided over the need for more interest rate hikes, with "some participants" concerned about the risks of raising rates too far, while "most" officials prioritize battling inflation.
- 🇨🇳 China's central bank unexpectedly cut a key interest rate, the one-year medium-term lending facility (MLF), by 15 basis points to 2.5%, and also lowered the seven-day reverse repo rate to 1.8%.
- 📉 The rate cuts in China were implemented due to a deteriorating property market, weak consumer spending, and sluggish economic data, including trade and consumer price numbers as well as record-low credit growth.
The Bank of England is predicted to make only one more increase to Bank Rate, taking it to 5.50% in September, despite other major central banks halting rate hikes, as the BoE struggles to control inflation.
The spike in retail inflation has raised uncertainty for investors and savers, with expectations of interest rate cuts being pushed to the next fiscal year and the possibility of a rate hike. The Reserve Bank of India projects inflation to stay above 5% until the first quarter of 2024-25, and food price pressures are expected to persist. While inflation may impact stock market returns, gold and bank deposit rates are expected to remain steady.
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.
The Bank of England may have to increase interest rates if the US Federal Reserve decides to raise rates to cut inflation, in order to prevent the pound from weakening and inflation from rising further.
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.
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.
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.
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.
The latest inflation report is expected to show a steady increase in consumer prices, with economists predicting a 3.6% overall inflation compared to last year, indicating that inflation is gradually coming down but still remains above the Federal Reserve's target.
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.
Despite a spike in gas prices, the rise in inflation appears to be easing gradually, with core prices exhibiting a slower increase in August compared to July, suggesting that price pressures are being brought under control.
Following the European Central Bank's record high interest rate hike to 4%, there is speculation about how long rates will remain at this level, with analysts predicting a 12-month pause before any cuts are made, while also considering the impact of rising oil prices on inflation expectations in Europe and the US. The Federal Reserve is expected to hold rates steady in September, but there are divided opinions on whether another hike will be delivered this year, with markets anticipating rate cuts in 2024. Similarly, the Bank of England is anticipated to make one final hike in September as it assesses inflation and economic indicators.
UK inflation unexpectedly fell in August to 6.7%, easing pressure on the Bank of England to raise interest rates, with falling prices for hotels and air fares offsetting the rising cost of fuel.
The prospect of the Bank of England pausing its interest rate hikes increased as the UK's high inflation rate unexpectedly slowed to an 18-month low, causing the pound to fall and investors to see a nearly 50-50 chance of rates staying on hold at the BoE's September meeting.
The Bank of England has opted not to raise interest rates for the first time in nearly two years, as inflation in Britain unexpectedly slowed and officials warned that the battle against persistent inflation is not yet over.
The Bank of England has decided to halt interest rate rises due to unexpected inflation slowdown, while housing markets in major global economies, including the US, Germany, and the UK, are showing signs of slowing down. Additionally, there have been developments in various countries' economic outlooks and key interest rates.
Despite expectations of higher interest rates causing a spike in unemployment and a recession, the Federal Reserve's rate hikes have managed to slow inflation without dire consequences, thanks to factors such as replenished supplies, changes in the job market, and continued consumer and business spending.
Australian consumer inflation grew as expected in August, driven by surging energy and housing costs, raising speculation that the Reserve Bank may need to further increase interest rates.
The European Central Bank's efforts to curb inflation through interest rate hikes have led to the lowest inflation rate in the euro zone in two years, indicating a potential slowdown in economic growth.
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.
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.
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.
The upcoming monthly inflation report is expected to show that inflation in the US is cooling off, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, indicating slower price increases in September than in August. However, if the report reveals that inflation remained higher than expected, especially in core areas, it may prompt the Federal Reserve to raise interest rates again, further slowing the economy.
The UK economy's marginal growth in August has led to expectations that interest rates will remain unchanged next month, with analysts describing the figures as lacklustre and warning of the negative impact of higher borrowing costs and the higher cost of living on consumers and businesses. The economy is currently not in recession but concerns over weak growth persist, making it a key issue in the upcoming election.
Consumer prices in the US grew at the same pace in September as in August, indicating that progress in controlling inflation may be stalling, prompting Federal Reserve officials to remain cautious with interest rate decisions.
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.
Despite high interest rates and sluggish GDP growth, analysts predict that the UK will avoid a recession due to a likely end to rate increases, falling inflation, and a return to real pay growth.
Economists warn that Britain's economy will grow less than expected next year due to the impact of higher interest rates and a weaker labor market, with GDP growth expected to be 0.7% in 2024. However, EY upgraded its GDP growth forecast for 2023 to 0.6%, citing an end to interest rate increases, falling inflation, and a return to real wage growth as factors that should prevent a recession. Inflation is expected to fall faster than previously forecast, reaching 4.5% by the end of the year before hitting the Bank of England's 2% target in the second half of 2024.
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.
Canada's inflation rate slowed to 3.8% in September, supporting predictions of the Bank of Canada keeping interest rates steady.
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.
The Bank of England should have a 3% inflation target and the power to use negative interest rates in response to economic shocks, according to a leading thinktank. This would allow for a more effective and flexible response to future downturns, while also avoiding rising debt or austerity measures.
