It’s been a busy week for UK economic statistics and as usual it’s been a mixed bag. On Monday we got the GDP figures, which showed the UK economy expanded by 0.2% month-on-month in July, marking a recovery from June’s 0.6% drop, but beating market forecasts for a growth of 0.5%.
Annually, GDP rose 2.3% in July, accelerating from June’s 1.9% rise.
“UK GDP for July has been a bit lower than expected at 0.2% month on month. However, adjusting for the June bank holiday makes the numbers a bit difficult to read, and we think that The Bank of England will pay closer attention to tomorrow’s August employment data to learn how tight the UK labor market really is,” ING said.
Inflation: a ray of hope?
On Wednesday, the ONS reported that the Consumer Price Index fell to 9.9% following a drop in gasoline prices. As always with a month’s worth of data, it’s too early to say that Team Transitory will have the final say, especially as shoppers and economists have noted a sharp rise in food price inflation. Food prices were more than 13% higher in August than a year ago, and this is particularly affecting “staple” foods like milk and eggs.
A drop below 10% is welcome, but the UK still has one of the highest inflation rates in the developed world, and the CPI is nearly five times the Bank of England’s target.
Consumers fear more energy bills and a long winter ahead. Government intervention last week to freeze energy bills, a move that could cost the country more than £100bn, is expected to curb inflation of electricity and gas bills. (The Office for National Statistics is currently calculating the likely effect of this move on inflation.) Some economists are already calling it: Capital Economics expects inflation to peak at 11.3% in November.
Retail sales plummeted
UK retail sales slumped in August amid cost-of-living pressures on consumers, figures from the Office for National Statistics showed on Friday.
Retail sales fell 1.6% month-on-month, much worse than the expected 0.5% decline, according to consensus cited by FXStreet. This reversed a 0.4% rise in July.
The ONS said the August data continued “a downward trend from the summer of 2021 following the lifting of hospitality restrictions; in recent months, rising prices and cost of living are also affecting volumes.” of sales”.
All major sectors (food, non-food, non-store retail, and food) fell during the month, something that has not happened since July 2021, when all Covid restrictions on hospitality were lifted.
Grocery store sales volumes fell 0.8% in August and were 1.4% below pre-COVID-19 levels. The ONS noted that retailers have reported increases in food prices.
Annually, UK retail sales fell 5.4% in August, deepening July’s 3.2% decline.
Retail sales figures for September will show the impact of the Queen’s death on official statistics, particularly the September 19 bank holiday. Whether we will see a change in consumer behavior remains to be seen.
An economist would expect the event to be in moderate demand, aside from stores selling royal memorabilia and newspapers promoting special commemorative editions. Will there be a push into London’s shops and restaurants by tourists visiting the capital to pay their respects to the deceased monarch? Visitors to the United States will certainly have more money to spend: a year ago the pound was worth $1.38 and now it is $1.14, the lowest level since the mid-1980s (in March 1985 a multi-decade low of $1.07 was hit, a close shave with parity).
Coming Soon – Budget and Bank of England
The week beginning in September begins with a bank holiday, but then goes full steam ahead. The Bank of England will make its latest interest rate decision on Thursday and is expected to raise interest rates by 50 basis points. Here is a summary of what the Bank said in August since it raised the base rate from 1.25% to 1.75%. Last month he forecast inflation peaking at 13%, but that was before the government stepped in on energy bills (for the record, the ONS is calculating the impact of this on inflation).
And to top it off, the government is planning an “emergency” Budget for Friday. Businesses and households are hoping that the new foreign minister, Kwasi Kwarteng, will take some steps to ease the cost-of-living crisis. “Growth at all costs” is the mantra of the new Truss regime as it starts in interventionist mode. The sense of national crisis was growing before the queen’s death and while that seismic event hit the pause button, but it will continue as usual after the state funeral.