- 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 government still holds a near 40% stake in NatWest bank, 15 years after the financial crisis, and this has prevented the bank from operating as a fully independent business. The UK economy has not seen the same level of recovery as the US since the crisis, and political hesitancy to sell the stake has hindered progress.
### Facts
- The UK government's stake in NatWest allows them to intervene in the bank's affairs, as seen with the recent sacking of the chief executive, Dame Alison Rose.
- Unlike the US, which has fully disposed of its bank holdings and experienced strong economic growth, the UK remains burdened by the legacy of the financial crisis.
- Progress has been made in selling down the NatWest stake, but concerns about selling at a loss have slowed the process.
- Private capital still sees the bank as dependent on the government and not a true independent business.
- The UK economy has been propped up by low interest rates, but this has led to mountainous debt, inflation, and a potential election defeat for the government.
- The UK economy is stagnant, with little real income and productivity growth.
- The government and Bank of England's focus on getting inflation back to target may induce a recession.
- The rapid rise in interest rates following a prolonged period of near-zero rates could be particularly damaging to the UK economy, which is unprepared for expensive money.
- Wage growth and inflation targets are incompatible, indicating the need for a reckoning.
- The UK's productivity problem lies in the oversized service sector, a growing public sector, and the lack of recession-induced restructuring.
- Many small and medium-sized companies have struggled to stay afloat, with the zero interest rate environment being their only support.
- Overall productivity will not increase until underperforming businesses are removed, which typically requires a recession.
### Summary
Average wages in Britain rose at a rate of 7.8% annually between April and June, outpacing inflation of 6.8% in July. However, the long-term picture shows that workers are still no better off than they were four years ago, indicating the need for sustained pay rises to improve living standards.
### Facts
- 💰 Average wages in Britain rose at a rate of 7.8% annually between April and June.
- 📉 Inflation in July was 6.8%, lower than the previous month's figure of 7.9%.
- ⚠️ The long-term data shows that workers are no better off than they were four years ago.
- 🔒 The Bank of England is concerned about wage rises leading to inflation becoming entrenched in the economy.
- 📉 The UK's productivity levels have fallen behind its peers since the financial crisis.
### Additional Information
- The Bank of England and Chancellor discourage asking for higher wages, fearing a wage-price spiral.
- The current UK real average weekly earnings figure is the same as it was in May 2019 and December 2010, and no better than in March 2006.
- Sustained pay rises are needed for workers to improve their living standards.
### Summary
European stock markets edged higher, supported by a drop in German producer prices and a smaller-than-expected rate cut from China. German producer prices fell significantly in July, indicating a retreat in inflationary pressures. The European Central Bank is considering a pause in its hiking cycle, which could help alleviate economic difficulties in Germany. In China, the rate cut announced by the People's Bank of China was seen as underwhelming, as analysts had expected a larger cut. The U.K. housing market also slumped, with the fastest decline in August since 2018. Oil prices rebounded, supported by the Chinese rate cut and expectations of lower output from top producers in August.
### Facts
- 📉 German producer prices dropped 1.1% in July and fell 6.0% annually, indicating a retreat in inflationary pressures.
- 🇩🇪 Economic difficulties in Germany are affecting the eurozone's growth and may lead to a recession.
- 🏦 ECB President's speech at Jackson Hole will provide clues on the central bank's next move in September.
- 🇨🇳 The People's Bank of China announced a smaller-than-expected rate cut, disappointing analysts.
- 🏘️ The U.K. housing market experienced its fastest decline in August since 2018.
- 🛢️ Oil prices rose due to the Chinese rate cut and expectations of lower output from top producers.
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.
UK PMI data suggests a 0.2% decline in GDP in Q3, indicating a potential recession as factory output slumps and the economy faces higher interest rates.
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.
Gross domestic product (GDP) grew at a rate of 2.1% in the second quarter of 2023, driven by consumer spending, while the Federal Reserve is considering raising interest rates again despite a drop in GDP growth; Americans are increasingly turning to credit cards in a high-interest rate environment, leading to rising credit card debt.
British home prices are expected to fall by 4% this year due to high interest rates and living costs, despite the shortage of supply, according to a Reuters poll, with potential buyers being kept out of the property market; however, prices are expected to recover from 2024.
The UK economy recovered to pre-pandemic levels in the fourth quarter of 2021, earlier than previously thought, with GDP growth revised up by 0.9 percentage points to an 8.5% increase in 2021, according to the Office for National Statistics.
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.
Large numbers of job cuts and reduced investment are hitting British manufacturing due to a slump in demand, according to the deputy editor of The Telegraph, Tim Wallace. The purchasing managers’ index fell to 43 in August, down from 45.3 in July, the lowest reading since August 2014 and the worst performance since May 2020, shortly after the first Covid-19 lockdown, also the worst since the financial crisis. Wallace cites Make UK economist Fhaheen Khan’s view that interest rates and inflation have lowered sales, sparking job cuts.
The UK economy has recovered more quickly from the pandemic than previously thought, outperforming Germany and other major Western industrial nations, although it still lags behind the G7 average, and there are concerns about the potential for a recession due to manufacturing struggles, sliding house prices, inflation, and strikes.
UK house prices have experienced their largest decline in 14 years, but despite fears of an impending crash, experts believe that the drop is unlikely to reach the levels seen during the global financial crisis in 2008 due to a more stable financial system, although prices may continue to slowly decline or stagnate and be eroded by inflation.
Revisions to economic data by the Office for National Statistics (ONS) have revealed that the UK economy was 0.6% larger at the end of 2021 than previously estimated, improving the country's performance relative to its peers in the G7. The revisions also highlight the impact of stockpiling in 2020 and indicate stronger growth in 2021, particularly in sectors such as wholesale trade and health services. However, while the revisions provide a more positive outlook, the UK's economic narrative remains relatively mediocre compared to pre-pandemic levels.
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.
The UK economy contracted by 0.5% in July due to strike action, bad weather, and weak economic growth, but the broader picture remains positive with growth in services, production, and construction sectors, according to the Office for National Statistics (ONS).
Goldman Sachs and J.P.Morgan have revised their full-year growth forecast for the UK's GDP due to a sharp contraction in the economy in July, with JPM now expecting 0.4% expansion and Goldman Sachs projecting 0.3% growth. Economists warn of the possibility of a recession as poor economic data continues to emerge, and GDP data indicates a weakening economy.
The Northern Ireland economy is experiencing signs of weakness, with data showing a contraction in the services sector and a slowdown in retail and hospitality due to inflation and consumer spending constraints. The jobs market is also showing negative trends, with a decrease in employee jobs and an increase in unemployment-related benefits. Overall business activity has fallen for the second consecutive month, indicating potential economic challenges ahead.
Britain's main manufacturing trade body has lowered its growth forecast for the sector due to a decline in factory output and economic uncertainty, with expectations of a 0.5% fall in output in 2023 and a growth of only 0.5% in 2024.
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 leading economic indicator dropped 0.4% in August, marking the 17th consecutive month of decline, but there is no indication of a recession in the U.S.
The UK economy is predicted to continue its stagnant state in 2024, with some economists and business groups even foreseeing a recession, while others, including the Bank of England, the IMF, and the OECD, anticipate modest growth despite high interest rates and a slowing global economic outlook. Different factors, such as labor hoarding and regions bucking the trend, complicate the overall picture, but overall, a stagnant or minimally growing economy seems likely.
New Zealand's economy, which slipped into a recession earlier this year, experienced modest growth of 0.9% in June, but economists warn that the weak figures are unlikely to improve significantly due to the looming global economic downturn caused by the pandemic and supply chain disruptions. The ruling Labour Party, facing declining support in the polls ahead of the October 14 election, is also grappling with rising prices and concerns about inflation.
The U.S. economy grew at a solid pace of 2.1% in the second quarter, but consumer spending was weaker than previously reported, although recent evidence suggests a rebound in consumer spending and GDP is expected to rise in the third quarter.
The UK economy has performed better than previously estimated during the COVID-19 pandemic, with growth outpacing Germany and France but lagging behind the US, according to revised official data, although households are still facing cost of living pressures.
Canada's gross domestic product (GDP) remained essentially unchanged in July, with zero percent growth, due to a decline in the manufacturing sector, weaker performance than expected, and shrinking industries such as agriculture, transportation, and retail. On the positive side, the mining and oil and gas sector experienced growth. Economists predict little to no growth in the third quarter, leading to expectations that the Bank of Canada will not make any changes to monetary policy for the rest of the year.
The UK GDP YoY growth rate is in line with expectations, showing a positive response to July's contraction, while the three-month average also meets forecasts, indicating a choppy economic outlook domestically and internationally as global growth slows down.
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.
