Overview of the week commencing 21 August
Graham Cross, CEO
The focus this week is on the slightly surprising UK inflation figures.
The Office for National Statistics (ONS) notes year-on-year inflation of 2.6 percent in July, unchanged from that in June. The consensus had indicated expectations for inflation to inch higher to 2.7 percent but, in the event, a sustained decline in the cost of motor fuels dragged on the aggregate.
While 2.6 percent is lower than was expected there isn’t anything in the underlying data to suggest that the broader picture has changed. It is wise, we think, to expect consumer prices to head higher – toward the 3.0 percent mark – over the next few months.
Don’t expect the Bank of England to respond with a rate rise anytime soon though. The bond market is currently priced for rates to remain where they are until sometime in late 2019 and sterling has lost another few pennies on the foreign exchange market.
Elsewhere, the German economy expanded by around 0.6 percent in the second quarter, at least according to the preliminary estimate from the Bundesbank. That puts output 2.1 percent higher than it was a year ago.
US retail sales rebounded in July with a 0.6 percent gain. At the same time, June’s 0.2 percent decline was revised toward a 0.3 percent increase. The US economy is expanding at a moderate pace.
Back again in the UK, unemployment has fallen again; from 4.5 percent in the three months to May to 4.4 percent in the three months to June. And while total pay growth picked up a little, from 1.9 percent to 2.1 percent more recently, it is a pace that can only be described as muted. The last time unemployment was this low, pay growth recorded gains more than twice that of the current rate.