Welcome to the weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last few weeks.
Analysts predict UK inflation peaking above 13%
UK inflation hit 10.1% in July, beating consensus forecasts of 9.8%. This was a rise from 9.4% in June and marks the highest annual rate of CPI growth since 1982. Highlighting the risks of further inflation, particularly from gas prices, some analysts now expect inflation to peak at even higher levels than the 13%-plus predicted by the Bank of England. Citibank expects UK inflation to hit 18.6% in 2023.
Energy prices will continue to place pressure on households and businesses alike, with more pain to come when the energy price cap is increased in October. However, price increases are not confined to headline-grabbing energy and food prices, but are becoming more broadly-based. Core inflation, which strips out energy and food prices, hit 6.2% in July, up from 5.8% in June, and three-quarters of the basket of goods tracked by CPI saw price increases of more than 4%.
The UK’s deteriorating inflation outlook was accompanied by a slew of poor economic data. UK PMI data fell more than 6 points to 46, suggesting remarkably weak manufacturing activity in August. Meanwhile, consumer confidence fell to an all-time low of -44, and government borrowing was higher than expected.
It was a largely negative week for major equity markets, reflecting concerns that the US Federal Reserve could strike a hawkish tone this week at its Jackson Hole conference, which will be attended by many central bankers from around the world. The global benchmark, the MSCI ACWI, closed down almost 2%, while the tech-heavy NASDAQ suffered the largest losses, ending the week down almost 3%.
UK bond markets also suffered losses, with the BAML 10+yr Gilt index ending the week down over 3%. Given the ever-increasing upward revisions of UK inflation forecasts, it is perhaps unsurprising that the benchmark for inflation-linked gilts was alone in ending the week in positive territory, up almost 2%.
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