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UK Inflation Holds Steady in August, Meeting Expectations

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Inflation in the U.K. remained stable in August, according to data released by the Office for National Statistics (ONS) on Wednesday, aligning with predictions from analysts. The headline consumer price index (CPI) remained at 2.2%, the same as July’s figure and in line with forecasts from a Reuters poll. This steady reading follows 2% CPI rates in both May and June, matching the Bank of England’s (BoE) target.

Following the news, the British pound rose slightly by 0.18%, trading at $1.3183 early Wednesday morning.

Services Inflation Rises:
One area of particular interest to the BoE is services inflation, which increased from 5.2% in July to 5.6% in August. The rise in this category is closely watched as it reflects domestic price pressures. Core inflation, which excludes volatile items like energy, food, alcohol, and tobacco, also rose, hitting 3.6%, up from 3.3% in July.

According to the ONS, the largest upward pressure on prices came from higher airfares, which increased significantly compared to last year. However, motor fuel prices, along with hotel and restaurant costs, saw notable declines.

Monetary Policy Outlook:
The BoE is scheduled to meet on Thursday for its next monetary policy decision. While there were earlier bets of a second consecutive 25 basis point rate cut, these predictions have since been revised downward, with traders now placing the probability at 28%.

Richard Carter, head of fixed interest research at Quilter Cheviot, noted that while recent economic data pointed to stagnation in the U.K.’s output and a slowdown in wage growth, the stickiness of core inflation complicates the BoE’s decision-making process. Carter suggested that the BoE might adopt a more cautious approach compared to the U.S. Federal Reserve, which has maintained a more aggressive stance.

Ruth Gregory, deputy chief U.K. economist at Capital Economics, shared similar concerns about the rise in services inflation, predicting that upward pressure on prices could persist, especially with potential increases in utility costs on the horizon. Gregory expects the BoE to hold off on further rate cuts until November, with additional cuts likely to be spaced out until mid-2025.

Economic Planning and Inflation Management:
Ahead of the U.K.’s Autumn Statement, set for October 30, the new Labour government will present its budget plans. Chief Secretary to the Treasury, Darren Jones, acknowledged that while inflation is becoming more manageable, substantial efforts are still needed to address deeper economic challenges.

 

UK Economy Stagnates in July, Falling Below Expectations

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The U.K. economy stagnated again in July, showing no month-on-month growth, according to flash figures released by the Office for National Statistics (ONS) on Wednesday. This flatlining performance followed a similar outcome in June, as the nation’s GDP came in lower than the 0.2% growth forecasted by economists.

The slight growth in Britain’s dominant services sector, at 0.1%, was overshadowed by declines in other key areas. Production output dropped by 0.8%, and construction saw a fall of 0.4%. These figures mark a challenging period for the U.K., as it faces sluggish economic growth, with GDP rising by just 0.5% in the three months leading up to July, compared to 0.6% in the previous quarter ending in June.

Liz McKeown, director of economic statistics at the ONS, noted, “The economy recorded no growth for the second month running, though longer-term strength in the services sector meant there was growth over the last three months as a whole.”

This period of stagnation comes after modest but steady growth earlier in the year, following the country’s emergence from a shallow recession at the start of 2024. Despite this initial recovery, the economy’s current performance signals persistent challenges.

The July data also marks the first economic figures under the leadership of Prime Minister Keir Starmer’s new Labour government, which was elected on July 4. These numbers come at a critical time, as the Bank of England is set to meet next week to make its latest interest rate decision. Last month, the central bank cut rates for the first time in four years, a move aimed at stimulating economic activity amidst ongoing uncertainty.

 

European Stocks Gain Amid Economic Data, UK Wage Growth Hits Two-Year Low

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European markets closed higher on Tuesday as investors processed new economic data following a period of market volatility. The pan-European Stoxx 600 index saw a 0.5% increase, with most major stock exchanges and sectors showing gains. Health care stocks led the charge with a 1% rise, while mining stocks dipped by 0.5%. This positive movement came after a mixed performance on Monday, when the focus was largely on upcoming inflation reports from the U.S. and the U.K.

In the U.K., the latest wage data from the Office for National Statistics revealed that pay, excluding bonuses, grew by 5.4% year-on-year between April and June, marking the slowest growth rate in two years. Despite the slowdown in wage growth, the unemployment rate fell to 4.2% from 4.4%, defying economists’ expectations of an increase to 4.5%.

Jack Kennedy, a senior economist at Indeed, noted that the U.K. labor market remains “fairly tight,” with wage pressures easing only slightly. This gradual softening could limit the extent of monetary easing the Bank of England can implement this year. The central bank recently cut interest rates by 25 basis points, bringing the key rate to 5%. As inflation data for July is set to be released, economists anticipate a slight uptick in the headline rate to 2.3%, following two months at 2%. Markets are pricing in the likelihood of further rate cuts totaling 50 basis points before the end of the year.

Following the labor market data, the British pound strengthened, rising 0.4% against the U.S. dollar to $1.2823. Globally, investors are also closely watching U.S. inflation data, seeking insights into the health of the world’s largest economy. On Tuesday, the U.S. producer price index, which measures wholesale prices, showed a modest 0.1% increase for July, falling short of expectations. This lower-than-expected rise could pave the way for the Federal Reserve to consider lowering interest rates.

U.S. stock markets responded positively to the news, with attention now turning to the consumer price index report due on Wednesday, which is expected to provide a clearer picture of inflation trends and future monetary policy actions.