In July, the UK's economy saw a 0.5% contraction, which was influenced by factors such as strikes and unfavorable summer weather, according to initial official reports. This decline, which was worse than anticipated by many economists, followed a previously unrevised 0.5% growth in gross domestic product (GDP) in the preceding month. Darren Morgan, the director of economic statistics at the Office for National Statistics (ONS), commented on this fluctuating performance, stating that while GDP fell in July, the overall outlook appears more positive, with growth observed in the services, production, and construction sectors over the past three months.
Former Bank of England Monetary Policy Committee (MPC) member Michael Saunders suggested that any potential interest rate increase this month might be the final one in the current cycle. Earlier concerns about up to three more interest rate hikes in the year have diminished, with economists now leaning towards the possibility of only one, or perhaps none. Earlier this summer, there were expectations that interest rates could reach 6%, but this scenario now seems less likely, providing relief to homeowners. Among six senior economists interviewed about expected rate increases for the remainder of the year, four suggested there might be none, or at most, just one more increase. There is growing optimism that the peak of interest rates may be closer than initially feared, as hinted at by Andrew Bailey, the Governor of the Bank of England.
However, one of the Bank of England's more hawkish policymakers expressed disagreement with the idea of pausing interest rate hikes. Catherine Mann, speaking to a business audience in Canada, opposed recent suggestions from senior MPC members that the BoE was nearing the peak of interest rates and could consider keeping them steady at the current level of 5.25%.
The European Commission has forecasted a contraction of 0.4% in Germany's economy for 2023, marking a slowdown in the broader eurozone due to higher inflation and the dampening effect of rising interest rates. This represents a significant shift from their previous projection of 0.2% growth for Germany just three months ago, primarily due to weaker consumer spending.
Treasury Secretary Janet Yellen expressed growing confidence that the US will be able to control inflation without causing significant harm to the job market. She cited data indicating a gradual slowdown in inflation and an increase in job seekers, stating that she feels positive about the current trajectory. Yellen hopes that the US can avoid a recession while still addressing consumer price increases effectively.
The pound has weakened over the past few days after news of halting interest rates sunk in, and this morning's GDP contraction news surfaced. GBPUSD currently resides at 1.2470 whilst GBPEUR sits at 1.16. EURUSD resides at 1.074.
