- 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
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.
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 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.
Euro zone inflation in August came in higher than expected at 5.3%, posing a challenge for the European Central Bank as it remains unchanged from the previous month.
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.
The Federal Reserve's preferred inflation gauge increased slightly in July, suggesting that the fight against inflation may be challenging, but the absence of worse news indicates that officials are likely to maintain interest rates.
British finance minister Jeremy Hunt has stated that inflation is expected to halve by the end of 2023, with the goal of easing pressure on household budgets and increasing productivity, as the government aims to boost optimism about the economy ahead of the expected elections next year.
Wall Street banks are revising their outlooks for Turkish interest rates as inflation rises faster than expected, with JPMorgan, Morgan Stanley, and Bank of America suggesting that borrowing costs may need to rise higher or quicker in response to the surge in price growth.
Inflation is expected to rise in August as oil and gasoline prices increase, putting pressure on the economy and potentially leading to higher interest rates and a stronger dollar.
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.
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.
Pakistan's central bank is expected to raise interest rates to address inflation and bolster foreign exchange reserves, following a series of rate hikes earlier this year in response to economic and political crises.
The value of UK mortgage arrears has increased by almost a third in April-June compared to the same period last year, reaching its highest level since 2016, due to rising mortgage costs caused by multiple interest rate hikes by the Bank of England. While some experts predict a rise in defaults, others argue that the number of people unable to repay their mortgages remains relatively low.
Inflation in the US is expected to accelerate again, with economists predicting a monthly rise of 3.6%, suggesting that price pressures within the economy remain a challenge in taming high inflation.
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.
The European Central Bank has raised its main interest rate for the 10th consecutive time to tackle inflation, but indicated that further hikes may be paused for now, causing the euro to fall and European stocks to rally.
US wholesale inflation in August exceeded expectations with a 0.7% increase, driven by a surge in energy costs and gasoline prices, providing the Federal Reserve with new data to consider in its decision on interest rates.
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.
Consumers' inflation expectations have reached the lowest level since March 2021, with expectations of a 3.1% rise in prices over the next year, according to new data from the University of Michigan, signaling a positive sentiment for the Federal Reserve's fight against inflation.
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.
Despite assurances from policymakers and economists, inflation in the US continues to rise, posing significant challenges to the economy and financial stability.
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 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.
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.
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.
Japanese consumer inflation grew above expectations in August, potentially signaling a move away from negative interest rates as the Bank of Japan meets to discuss its monetary policy.
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.
High inflation continues to pose challenges for central banks in Europe as some opt to pause interest rate hikes after nearly two years, leading to speculation on how long rates will remain at current levels and how to balance slowing economies, persistent inflationary pressures, and the delayed impact of rate hikes.
Australia's inflation for August met expectations, with core inflation easing further, reducing pressure on the central bank to raise interest rates next month.
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.
Underlying US inflation is expected to rise, supporting the idea that interest rates will need to remain higher for a longer period of time, as indicated by central bankers.
The European Central Bank (ECB) has raised its key interest rates for the tenth consecutive time in response to a series of crises and the need for price stability, although the rise has caused concerns about the level of interest rates and their impact on growth; ECB President Christine Lagarde emphasizes the need to make inflation projections more robust and to communicate effectively with the public to counter misinformation.
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