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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