Did the UK Economy Shrink in the Second Quarter?
The UK economy is expected to contract slightly in the second quarter as it heads into a recession later this year on a scale not seen since the 1990s.
Economists polled by Reuters are forecasting a report on Friday that showed output fell 0.2 percent between the first and second quarters. Gross domestic product is forecast to have contracted 1.3 percent between May and June, impacted by the anniversary extra holiday and partially reversing the expansion in May.
This follows 0.8 percent growth in the first quarter, with the slowdown reflecting the impact of the impact of rising energy prices on household finances.
Last week the Bank of England downgraded its economic forecast for the UK as it hiked interest rates by the widest margin in almost 30 years.
After some growth in the third quarter, the bank said the UK is expected to enter recession from the fourth quarter of this year and continue to shrink until the end of 2023. After that, growth is expected to be “very weak by historical standards,” the bank said.
This is a significant downgrade from May’s assessment after gas prices rose again reflecting the protracted war in Ukraine and cuts in gas supplies to Europe.
“But the bigger picture is that in 2025 the economy is still on track to be smaller than it was in pre-pandemic 2019,” said Thomas Pugh, an economist at consultancy RSM UK. “The much weaker economy will likely lead to more unemployment.” Valentina Romei
Is US core CPI being overlooked?
Headline inflation captures the highly visible grocery and gasoline categories that weigh on consumers’ wallets as prices rise, but the U.S. core consumer price index – which excludes these volatile categories – is expected to beat the headline count in July and could do so in the months to come .
Economists polled by Reuters expect US headline inflation to rise 0.2 percent monthly from June to July, while core CPI is expected to rise 0.5 percent. The report is due out on Wednesday.
Derek Holt, head of capital markets economics at Scotiabank, sees the core CPI as the number that could show more clearly how stubborn US inflation is. He said the US may already have peaked in inflation when it comes to food and fuel, but price growth for durable goods and some services will continue to rise.
“We are still in the phase that is having a reopening effect on the more volatile high contact and service prices where people are out and traveling more in the summer,” he said.
For example, property and vehicle prices could continue to rise as food and fuel prices plateau, especially after Opec+ last week agreed to a modest increase in production and Ukraine and Russia reached an agreement allowing Ukraine to export their grain in to export a market with limited supply.
But heightened tensions between China and Taiwan could disrupt the island’s dominant semiconductor industry and send ripples through the global economy.
“A disruption in Taiwan would strike at the heart of many manufactured durable and high-priced items and bring many supply chains to a major standstill,” Holt said, with the caveat that he doesn’t expect such an eruption. Jaren Kerr
Will Eurozone industrial production falter?
The euro zone is facing a slowdown in economic activity as rising interest rates and soaring food and fuel prices caused by Russia’s war in Ukraine push the region into recession.
Euro-zone industrial production data for June are due to be released on Friday and will show the impact of rising energy prices and prolonged supply chain disruptions on industrial production. The May number beat analysts’ expectations with industrial production rising 0.8 percent month-on-month, but analysts now expect it to be flat in June.
“Activity in the euro area is deteriorating across the board, across sectors and countries,” said Barclays analysts, who expect the euro area to slip into recession by the end of the year.
German manufacturing orders fell in June as the eurozone’s largest economy grappled with supply chain problems and disruptions stemming from the Ukraine war. Analysts and economists widely expect the region to slide into recession as business and industrial activity slows and consumer spending slows, weighed down by the cost of living and the energy price crisis. Nikou Asgari