- 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%.
The U.S. economy continues to grow above-trend, consumer spending remains strong, and the labor market is tight; however, there are concerns about inflation and rising interest rates which could impact the economy and consumer balance sheets, leading to a gradual softening of the labor market.
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.
Despite a slight increase in Canada's inflation rate last month, the Bank of Canada remains determined to bring it down to 2%, with the possibility of another rate hike being considered in September. However, some economists believe that the positive overall figures may allow the Bank to pause on rate increases without a significant negative impact.
The UK and eurozone economies are at risk of recession due to a significant slowdown in private sector activity, with the UK experiencing its poorest performance since the Covid lockdown and Germany being hit particularly hard; the US is also showing signs of strain, with activity slowing to near-stagnation levels.
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.
The contraction in euro area business activity has intensified, particularly in Germany, leading to expectations that the European Central Bank will pause its interest-rate hike campaign; US mortgage applications for home purchases have hit a three-decade low due to rising borrowing costs; South Korea's exports continue to decline, indicating lackluster global trade; Turkey's interest-rate increase has triggered a rally in the country's assets; shrinking water levels at the Panama Canal due to climate change may cause delays in restocking inventories before Christmas.
The US economy is expected to slow in the coming months due to the Federal Reserve's efforts to combat inflation, which could lead to softer consumer spending and a decrease in stock market returns. Additionally, the resumption of student loan payments in October and the American consumer's credit card addiction pose further uncertainties for the economy. Meanwhile, Germany's economy is facing a contraction and a prolonged recession, which is a stark contrast to its past economic outperformance.
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.
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.
The number of job vacancies in the US dropped in July, indicating a cooling labor market that could alleviate inflation, while fewer Americans quit their jobs and consumer confidence in the economy decreased, potentially impacting consumer spending; these trends may lead the Federal Reserve to delay a rate hike in September.
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.
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.
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.
The UK economy recovered from the Covid-19 pandemic faster than previously thought, with revised data showing that UK GDP was actually 0.6% larger by the end of 2021 than in the final quarter of 2019, erasing Britain's laggard status; however, economists caution that this stronger data does not change the overall outlook for Britain's growth or provide relief to households facing high inflation and rising borrowing costs.
Central banks across major developed and emerging economies took a breather in August with lower interest rate hikes amid diverging growth outlooks and inflation risks, while some countries like Brazil and China cut rates, and others including Turkey and Russia raised rates to combat currency weakness and high inflation.
Mortgage rates have been decreasing and could fall further this month if inflation continues to come down.
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.
China's consumer prices rose slightly and the decline in factory-gate prices slowed in August, indicating easing deflation pressures and signs of stabilization in the economy, although more policy support is needed to boost consumer demand.
The article discusses how the rate of inflation has impacted processors, distributors, and other middlemen, with some benefiting from price increases but now at risk of a slowdown.
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 Wall Street Journal reports a notable shift in the stance of Federal Reserve officials regarding interest rates, with some officials now seeing risks as more balanced due to easing inflation and a less overheated labor market, which could impact the timing of future rate hikes. In other news, consumer credit growth slows in July, China and Japan reduce holdings of U.S. Treasury securities to record lows, and Russia's annual inflation rate reached 5.2% in August 2023.
British pay growth hits a record high, potentially leading the Bank of England to raise interest rates again, despite a cooling labor market with rising unemployment and falling job vacancies.
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.
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.
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.
Wholesale inflation in the U.S. accelerates for the second month in a row, with the Producer Price Index rising to 1.6% and indicating that inflation is not yet in line with the Federal Reserve's target of 2%.
The Bank of England (BoE) is expected to raise its main interest rate by 25 basis points to its highest level in more than 15 years, as inflation in Britain remains above target and economists see room for further tightening.
The Federal Reserve's restrictive monetary policy, along with declining consumer savings, tightening lending standards, and increasing loan delinquencies, indicate that the economy is transitioning toward a recession, with the effectiveness of monetary policy being felt with a lag time of 11-12 months. Additionally, the end of the student debt repayment moratorium and a potential government shutdown may further negatively impact the economy. Despite this, the Fed continues to push a "higher for longer" theme regarding interest rates, despite inflation already being defeated.
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.
The British banking sector is seeing an increase in impairments due to rising inflation and interest rate hikes, according to Bank of England Deputy Governor Sam Woods, who also expressed concerns about shadow banks and risks arising from China's economic headwinds.
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.
Central banks around the world may have reached the peak of interest rate hikes in their effort to control inflation, as data suggests that major economies have turned a corner on price rises and core inflation is declining in the US, UK, and EU. However, central banks remain cautious and warn that rates may need to remain high for a longer duration, and that oil price rallies could lead to another spike in inflation. Overall, economists believe that the global monetary policy tightening cycle is nearing its end, with many central banks expected to cut interest rates in the coming year.
UK companies experienced a challenging September with growing unemployment and recession risks, reflected by a drop in the services sector PMI to its lowest level since the pandemic lockdown, leading to the Bank of England's decision to halt interest rate hikes.
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.
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