UK: Easing food prices causes surprise decline in inflation

Inflation unexpectedly fell last month as the increase in food prices slowed and a drop in services activity caused the Consumer Prices Index to drop slightly to 6.7%. Core inflation (excluding volatile fuel and food prices) also slowed as it fell to the lowest rate since March. Lower inflation allowed the Bank of England to keep interest rates on hold and mortgage borrowing costs are now expected to continue falling.

Improving inflation was generally welcomed by investors and policymakers, but there are signs inflation may remain high for some time. The recent decline is partly due to the slowdown in food inflation but, at 13%, this is still very high. Commodities, including crude oil, raw materials and some foods have also been rising in recent weeks. The OECD said central banks will need to keep rates elevated to deal with sticky inflation and it expects the UK’s core inflation rate to remain higher than other developed countries.

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• Global: Central Banks leave rates unchanged as markets look to ‘higher for longer’
• Interest Rates: BoE, FED and Swiss Bank leave rates unchanged
• Equities: Higher oil prices and end of rate holes boost UK shares

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

 

UK: GDP falls in July, but wages still rising fast

Economic activity fell sharply in July as unusually wet and cold weather and strike action caused GDP to fall by 0.5%. This is the largest monthly decline since December 2022. The UK jobs market is showing some signs of weakness as the unemployment rate increased 0.5% to 4.3% between March and June. The housing market is also showing more signs of stress as mortgage borrowing fell steeply and the number of mortgages in arrears has jumped to the highest level in seven years.

The poor economic data has fed speculation that the Bank of England will leave interest rates unchanged at next week’s meeting of the Monetary Policy Committee. This helped UK gilts to rally slightly although sterling continued to fall against the dollar. However, average wages increased by 7.8% during the second quarter of the year. Catherine Mann, a member of the MPC, this week said she favours further rate hikes to prevent inflation from crystallising at its current elevated level.

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• Global: Disappointing economic growth points towards the end of Central Banks’ rate hikes
• Europe: ECB hikes again as markets see end of tightening
• Equities: Investor demand for new listings is put to the test

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

 

OIL: Brent hits $90 a Barrel

Brent Crude topped $90 a barrel for the first time in 2023 as the price of oil continued its recent rally. Earlier this year Saudi Arabia capped its oil production to try and drive the price up from recent lows. This week it announced this temporary production cap would be extended to the end of the year, meaning it will be producing 1 million barrels less each day. Russia also announced that its production cap would be extended to the end of the year.

The increase in the oil price has helped UK energy stocks outperform the broad index in recent weeks. However, higher oil prices will be less welcome by the Bank of England as it aims to get inflation under control. Declining energy prices have played a significant part in reducing headline inflation. But with petrol and diesel prices already rising the recent disinflationary effect from energy costs could be put into reverse. 

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• UK: Bank of England makes an effort to signal an end to interest rate hikes
• China: New efforts to restore consumer and investor confidence
• UK: Bank of England keen to signal that end of rate hikes is near

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

Yields are falling as economic data points to a drop in activity

This week was quieter with economic data steering the direction of conversation. Markets spent the weekend digesting central bank comments at the Jackson Hole symposium, leaving future interest rate movements at the forefront of investor thoughts. That continued on through to this week with key economic metrics such as US job openings reported, as well as today’s US unemployment rate, which saw a 0.3% increase to 3.8%.

A year of tight financial conditions has started to slow economic activity, in addition to helping slow inflation. Central banks have been walking a tightrope of raising interest rates sufficiently to tame persistent inflation, but not sufficiently high to crash the economy. With many metrics now showing early signs that economic activity is slowing, pressure on the Federal Reserve to raise interest rates at their next meeting in November is easing.

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• Weak economic data help bons rebound
• High mortgage rates yet to impact US house prices
• Food and metal prices remain volatile

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)