Ear to the Ground

(11 August 23)

UK economic data was a little thin on the ground but we ended with some positive news regarding the economy.  Preliminary data showed that the UK economy grew in the second quarter by 0.2%.  Whilst a low figure in absolute terms, this was higher than the consensus forecast of 0%.  This equated to year on year growth of 0.4%, above the consensus forecast of 0.2%.  The economy is still yet to regain where it would have been had it followed its pre-Covid trend.  Key drivers behind the growth were manufacturing production and government consumption.  The key question on investors and economists mind now will be what influence, if any, this has on the Bank of England’s interest rate setting policy.

In the US focus was on inflation this week, with figures to July released.  Month on month figures were as expected, being 0.2%.  Core inflation was also the same, being 0.2%.  There was only one real driver behind this figure, however, with the Bureau for Labor Statistics reporting that an increase in the cost of shelter accounting for 90% of it.  With inflationary pressures appearing to be tempering, the question as to whether the Federal Reserve can pause in their interest rate hiking cycle, or has indeed reached its peak, has again come to the fore. 

Those members of the public with outstanding credit card balances will certainly be hoping that the end is nigh.  Statistics now show that the average credit card interest rate issued by commercial banks is at its highest ever rate going back to the 1990’s.  At a rate in excess of 20% this is more than 5% higher than where it was last year.  Ultimately, you would have to think that a rate this high will have to act as a drag on consumer spending, but I guess more work is required here to understand the level of credit card debt outstanding and how that compares to consumer disposable income.

Somewhere where inflation is not proving an issue is right now is China.  This week we saw the rate come in at -0.3% year on year.  Whilst this was stronger than the forecast reading of -0.4%.  A key contributor to the negative reading was food prices, with non-food prices remaining relatively flat according to the National Bureau of Statistics of China.  They also, however, believe that this will prove temporary and that the removal of a high base from last year will see inflation pick back up.  Anyone remember the word transitory?