UK Economy

The Bank of England's inflation problem is not going to fade as fast as it hopes according to new data that reveals the UK labour market remains strong and consistent with churning out inflation levels above the Bank's own forecasts.

A major revision to the UK's GDP statistics reveals the country is no longer a laggard when compared to its major rivals with the economy now firmly above pre-pandemic levels.

Business confidence rallied to an eighteen-month high in August, led by a rebound in economic optimism, according to the Lloyds Business Barometer.

Pound Sterling exchange rates fell widely in midweek trade after respondents to S&P Global surveys cited high interest rates and other headwinds for an August softening of business conditions in the services industry underpinning the domestic economy with possible implications for Bank of England (BoE) interest rate policy.  

Pound Sterling climbed against the Dollar, Euro and a selection of other currencies on Tuesday after Office for National Statistics (ONS) figures painted a less bleak picture of the public finances for the recent month and in turn led economists to contemplate how the government might respond to any calls for tax cuts in the Autumn budget. 

Pound Sterling eased from recent highs against the Euro, Dollar and other currencies in the final session of the week after retail sales were reported to have fallen further than expected in July with declines seen across most product categories but partially attributed to rainy and overcast weather during the period.

Pound Sterling edged higher against many counterparts after Office for National Statistics (ONS) data indicated continued record growth in wage packets during June but also confirmed what appear to be cracks emerging in the overall labour market. 

Official measures of supply and demand suggest an economy growing faster than many expected including the Bank of England (BoE), leading to forecast upgrades in some parts this week and increased uncertainty about the outlook for interest rates. 

A business investment boom might be underway in the UK as businesses utilise their considerable cash balances amidst an improved political landscape and despite rising interest rates.

The UK economy was firmly back in growth territory in June according to the latest GDP figures from the ONS which also revealed a solid uptick in quarterly and annual growth.

One of the UK's largest recruiters reports a sizeable increase in job vacancies being advertised by the government.

The Bank of England can be increasingly confident the impact of previous interest rate hikes are having an impact as British businesses reported in July that their expectations for inflation had fallen to an eleven-month low, while hiring intentions also fell.

Salaries being offered to new starters in London's financial services industry are down sharply, raising hopes that a wage-lead inflation spiral is unlikely.

Pound extends recovery against Euro & Dollar, UK consumer confidence at 18-month peak.

Some economists say a widely monitored private sector survey is an indication that UK inflation could fall notably further by year-end, leading the Bank of England (BoE) to "pause" its interest rate cycle soon, but the broader implication is that the BoE may already 'overtightened' and could need to consider cutting borrowing costs in the near future.

Economists say although the prospect of a second consecutive 50 basis point rate hike in August has greatly receded following softer-than-expected June inflation figures, an elevated services inflation gives the Bank of England cause to hike on at least two more occasions.

Good news for households and businesses as UK inflation came in well below expectation in June, but for the British Pound the slowdown in price rises could spell weakness.

Some economists are forecasting UK economic growth to pick up through the remainder of 2023, although others warn of a recession taking hold as higher interest rates begin to bite.

The UK economy outperformed expectations for the month of May when an additional public holiday connected with the King's Coronation had less of a negative impact than many envisaged though was still enough to leave output little changed for the second quarter at the midway milestone. 

Pound to Euro rate rises to 1.17 in the immediate aftermath of the UK labour market release while the Pound to Dollar exchange rate goes to a new 2023 best at 1.2899.