An Analysis of UK Inflation, Fed Minutes, and China’s Economic Data
How far will inflation fall in the UK?
The July UK inflation print is highly anticipated, following the Bank of England’s recent decision to slow down its tightening campaign. While the central bank raised interest rates by 0.25 percentage points, it was a smaller increase compared to the previous month’s half-point raise. Economists polled by Reuters expect the annual inflation rate to fall to 6.7% in July, slightly below the Bank of England’s own forecast of 6.8%, and a significant drop from June’s 7.9%.
Investors will pay particular attention to core inflation, which excludes volatile food and energy prices and provides a better indicator of underlying price pressures. Core inflation has been slower to retreat, with a slight decrease to 6.9% last month. Economists polled by Reuters expect a further decrease to 6.8% in July.
June saw a lower-than-expected inflation rate, giving the Bank of England some breathing room after four consecutive months of hotter-than-expected prints. However, doubts have arisen among analysts about the extent to which tighter policy is spreading, especially with the stronger-than-expected second-quarter UK GDP growth released recently. This discrepancy has led some experts, like Tomasz Wieladek, chief European economist at T Rowe Price, to believe that wage growth data will surprise the Bank of England positively next week.
In the coming week, the focus will also be on UK services inflation, which the Bank of England monitors as a gauge of medium-term inflationary pressures. Services inflation has been consistently sticky, falling to 7.2% in June from a peak of 7.4% in May.
What will the Fed minutes say about the outlook for rate hikes?
The release of the minutes of the Federal Reserve’s July meeting on Wednesday will provide insights into the deliberations surrounding potential interest rate hikes this year. In July, following a break in June, the Fed raised its key policy rate to a range of 5.25% to 5.5%. At that time, it noted elevated inflationary pressures and cited a hot job market and steady economic growth as contributing factors.
Since then, inflation has cooled further. July’s headline inflation rose less than expected, with core inflation rising at the same pace as in June – 0.2%. The annual rate dipped to 4.7%, the lowest level since October 2021. This data suggests that the Fed has some room to avoid further hikes at its September meeting.
While the likelihood of a US recession in the near term remains low, it will be important to monitor how the Fed interprets the current economic situation and its impact on future rate hikes.
Will the latest economic data from China lighten the gloom?
China’s economic outlook has been clouded by deflation, falling trade, and rising debt since the relaxation of strict Covid-19 controls. The National Bureau of Statistics is set to release new data on industrial production and consumer spending, which will provide additional insight into the state of China’s economy.
Following the 3.1% rise in retail sales in June, economists expect a year-over-year increase of 4.7% in July. Although this would still mark a steep slowdown from the 12.7% growth in May, it shows some signs of improvement. Additionally, annual industrial production is expected to increase by 4.4% in July, consistent with the growth seen in the previous month.
The Chinese economy has faced pressure from a “financial downturn,” but there are indications of recovery in certain sectors. High-frequency data suggests that hotel occupancy rates, cinema box office revenue, and domestic flights are on the rise, which could lead to increased sales of goods such as apparel, cosmetics, and jewelry.
However, the retail sales of other goods, particularly automobiles and appliances, may experience a decline in July due to a high comparison base. Manufacturing activity also contracted in July, although at a slower pace than in June. A marginal improvement in demand could help industrial production rebound by 5.2%.
Summary
The July UK inflation rate is expected to fall to 6.7%, providing some relief for the Bank of England. Core inflation is also anticipated to decrease slightly to 6.8%, while attention will be on UK services inflation, which has remained sticky. The release of the Federal Reserve’s July meeting minutes will shed light on the possibility of future rate hikes in the US. With inflation cooling further, the Fed might have some leeway to avoid further hikes at its September meeting. In China, economic data on industrial production and consumer spending will provide insight into the country’s recovery from deflation and falling trade. Retail sales are expected to increase, although at a slower pace, and industrial production is anticipated to rebound. Despite challenges, signs of recovery in certain sectors suggest a possible lightening of the economic gloom in China.
—————————————————-
| Article | Link |
|---|---|
| UK Artful Impressions | Premiere Etsy Store |
| Sponsored Content | View |
| 90’s Rock Band Review | View |
| Ted Lasso’s MacBook Guide | View |
| Nature’s Secret to More Energy | View |
| Ancient Recipe for Weight Loss | View |
| MacBook Air i3 vs i5 | View |
| You Need a VPN in 2023 – Liberty Shield | View |
Receive free UK inflation updates
We will send you a myFT daily digest email rounding last Inflation in the UK news every morning.
How far will inflation fall in the UK?
The stakes are high for July’s UK inflation print, due out on Wednesday, after the Bank of England slowed its tightening campaign last week by raising interest rates by 0.25 points percentages, a smaller increase than the previous month’s half-point increase.
Economists polled by Reuters expect the annual inflation rate to fall to 6.7% in July, slightly below the BoE’s 6.8% forecast, and a significant drop from 7.9% in June.
Beyond the headline, investors will be watching closely core inflation, which excludes volatile food and energy prices and is seen as a better indicator of underlying price pressures, and has been slower to retreat. Falling only slightly last month to 6.9%, economists polled by Reuters expect a 6.8% rate in July.
The central bank got some breathing room last month as the June ion came in below forecast, following four consecutive months of hotter-than-expected prints. The July inflation release brought good news for the US Federal Reserve this week with a nominal rate of 3.2%, slightly lower than analysts had expected.
But stronger-than-expected second-quarter UK GDP growth released on Friday left some doubts among analysts about the extent to which tighter policy is spreading. “I believe the wage growth data will surprise the Bank of England to the upside next week,” said Tomasz Wieladek, chief European economist at T Rowe Price.
Particular attention will be paid next week to UK services inflation, which the BoE monitors as a gauge of medium-term inflationary pressures and has been consistently sticky, falling to just 7.2% in June from a peak of 7 .4% in May. Mary McDougall
What will the Fed minutes say about the outlook for rate hikes?
Investors will be watching the release of the minutes of the Federal Reserve’s July meeting on Wednesday to get a sense of the deliberations officials have had on whether the central bank should raise interest rates again this year.
Following its June break, the Fed raised its key policy rate to a range of 5.25% to 5.5% at its July meeting, when it said inflationary pressure remained “elevated” and he cited the hot job market and steady economic growth.
While the likelihood of a US recession in the near term remains low, inflation has cooled further since then. Headline inflation rose less than expected in July, with the core inflation category, which excludes volatile food and energy components from the calculation, rising by 0.2%, at the same pace as in June. The annual rate was 4.7%, down from 4.8% in June and the lowest level since October 2021.
This indicates that the Fed has some leeway to avoid a further hike at its September meeting. Kate Duguid
Will the latest economic data from China lighten the gloom?
Deflation, falling trade and rising debt: There hasn’t been much good economic news out of China since the abrupt abandonment of strict Covid-19 controls late last year.
Investors who explosively propelled China into a recovery from the pandemic just a few months ago now face mounting evidence of slowing momentum in the world’s second-largest economy. Industrial production and consumer spending data to be released on Tuesday by the National Bureau of Statistics will provide another glimpse into the state of China’s recovery.
After retail sales rose 3.1% in June, economists polled by Reuters expect a 4.7% year-over-year increase in July, though that would still mark a steep slowdown from 12.7% growth. % of May. July annual industrial production is expected to increase by 4.4%, in line with the previous month’s growth.
Analysts at investment bank China International Capital Corporation expect both measures of economic activity to improve from June, even as pressure from a “financial downturn” weighs on activity. New high-frequency data shows a recovery in hotel occupancy rates, cinema box office revenue and domestic flights, which are expected to “improve” sales of goods including apparel, cosmetics and jewellery, analysts at CICC Wenlang said Zhang, Wenjing Huang and Yuchi Zheng.
However, they added that growth in retail sales of other goods could slow in July “due to a high comparison base,” with sharp declines expected in auto and appliance sales.
Manufacturing activity also contracted in July, albeit at a slower pace than in June. A marginal improvement in demand could help industrial production rebound by 5.2%, according to CICC. George Steer
—————————————————-