It’s time for another edition of my economic data roundup, and this time I’ll be focusing on the latest set of reports from the United Kingdom. Before y’all take a look at how the British economy has been faring recently, make sure you review my previous economic roundup on the U.K.!
After three consecutive months of stronger than expected gains since February this year, U.K. retail sales slowed down towards the end of the second quarter. Retail sales fell by 0.5% in May then printed a mere 0.1% uptick in June, lower than the estimated 0.2% increase.
Despite that, the U.K. still managed to chalk up its strongest quarterly pace of retail sales growth in 10 years, as it reported a 1.6% gain in Q2. Some say that seasonal factors were to blame for the recent dip in spending for the past couple of months while others believe that weak wage growth is starting to weigh on consumers’ buying habits.
Remember those days when Carney would speak of hiking interest rates sooner rather than later? Back then, increasing house prices and a rising number of mortgages were enough to convince BOE policymakers to consider tightening monetary policy before the end of the year.
Recent reports from the housing sector reflect a slowdown, however, as the Rightmove HPI showed a mere 0.1% uptick in June and a 0.8% decline in July. Although BBA mortgage approvals ticked slightly higher in June, the annualized pace of increase has been slipping since the start of the year. In January, BBA mortgage approvals marked a 57% year-over-year increase before dropping to 24% in April then 14% in June.
Bear in mind though that the U.K. government has taken a few measures to cool housing demand and prevent asset price bubbles. After all, the Mortgage Market Review introduced in April enforced stricter conditions on loan approvals.
Latest inflation reports still printed stronger than expected results, with the headline CPI showing a 1.9% gain and core CPI coming in at 2.0%. This marks a huge leap from the 1.5% headline CPI and 1.6% core figure in May.
Components of the report suggest that the price levels may have been boosted by one-off factors, such as the good weather in the past few months which deterred retailers from slashing clothing and footwear prices for end-of-season sales.
Leading inflation indicators, such as producer input and output prices, appear to be hinting that price levels might retreat later on. PPI input levels slipped by 0.8% in June while PPI output levels dropped by 0.2%, suggesting weaker consumer price pressures in the coming months. It doesn’t help that slow wage growth might keep weighing on price levels as well.
The preliminary GDP release for the second quarter of the year reflected another 0.8% growth figure as expected. This marked the same pace of expansion as in the first quarter. Components of the report indicated that the services sector contributed the most to growth as the industry expanded by 1.0%. Meanwhile, the manufacturing sector marked a mere 0.2% increase in activity while the construction industry showed a 0.8% decline.
While some economists say that this growth reading was enough to put the U.K. economy back above pre-crisis levels, others think that it’s a sign that the economic recovery has already peaked and may be about to slow down later on. BOE officials share this sentiment, as the minutes of the MPC meeting indicated that economic slack might be a drag to growth towards the end of the year.
Do you think the U.K. economy is about to slow down in the next few months? Share your thoughts in our comment box or cast your votes in our poll below!