Tag: UK

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UK inflation lower at 6.8% in July 2023 as energy costs fall

According to the Office for National Statistics (ONS) – Inflation fell to 6.8% in the year to July 2023, down from 7.9% in June. A reduction was anticipated by analysts, and there are signs the cost of living could be easing finally, after figures on Tuesday revealed wages rose 7.8% annually between April and June 2023. But inflation and therefore prices remain high, placing pressure on household finances.

When the rate of inflation falls, it does not always mean that prices are coming down, but that they are likely to rise less quickly. A fall in gas and electricity prices last month helped drive inflation lower. The cost of some food food items, such as milk, bread and cereals had come down, but that food prices are still some 15% higher than they were in July 2022.

Core inflation

However, according to the ONS figures core inflation a figure which strips out the price of energy, food, alcohol and tobacco, remained unchanged in July at 6.9%. With inflation still more than three times the Bank of England’s 2% target, many ‘experts’ expect the UK’s central bank to raise interest rates again in September 2023.

The Bank has steadily hiked interest rates to 5.25%, the highest level in 15 years, meaning mortgage costs have jumped dramatically, but on the flipside savings rates have increased too for the first time since the financial crisis of 2008.

Working?

The Chancellor said July’s figures on the cost of living showed the action the government had taken ‘is working’.

Comment

Well… it’s ‘working‘ in the sense it is having the desired affect to reduce inflation – (that both the government and the Bank of England were way behind on) – but it isn’t helping the economy, as interest rates climb making it more expensive for businesses and consumers to function.

But, at least wages are going up now thanks to all the strikes! This will ultimately add more inflationary pressure in the short term.

Let the tinkering continue!

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Britain to unlock £50 billion in pension funding for tech startups

Money in case

UK to unleash £50 billion in pension funding for tech startups

The U.K. government has unveiled a series of reforms that will allow pension funds to invest more in private and high-growth companies, especially in the tech sector. The move is expected to boost economic growth, support innovation and increase returns for future retirees.

The reforms include an agreement with the country’s largest defined contribution pension schemes to allocate 5% of assets in their default funds to unlisted equities by 2030. This could unlock up to £50 billion of investment in high-growth firms if all other defined contribution pension schemes follow suit, according to the government.

AI

The government will also create new investment vehicles that will give pensioners a stake in homegrown private companies, such as fintech and biotech startups, that have increasingly snubbed the London Stock Exchange and turned to foreign investors for cash. The aim is to make the U.K. a more attractive market for technology and a global leader in emerging fields like artificial intelligence.

The Treasury claimed that the reforms would not only help burgeoning industries, but could also result in higher returns for workers’ retirement funds. The government estimates that the average earner’s pension pot could rise up to 12% to as much as £16,000 with defined contribution pension schemes committing to more effective investments.

Unlock

The announcement comes amid criticism that the U.K. is losing its edge in technology and innovation, as evidenced by the recent decision of U.K. chip design giant Arm to list in New York rather than London. The chancellor, Jeremy Hunt, reportedly said that he wanted to make the U.K. ‘the world’s next Silicon Valley and a science superpower’ by unlocking investment from the U.K.’s £2.5 trillion pensions sector.

The reforms were welcomed by industry groups and experts, who said that they would help address the funding gap faced by many U.K. startups and scale-ups, and create more opportunities for long-term growth and value creation.

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UK economy grows June 2023

UK GDP up April - June 2023

U.K. economy beat expectations with 0.2% growth in the second quarter, boosted by household consumption and manufacturing output, the Office for National Statistics said Friday.

Economists had expected U.K. GDP to level off in the second quarter, after a surprise increase of 0.1% in the first quarter, as the Bank of England’s monetary policy tightening took effect and as persistent inflation began to slow consumer demand.

The economy expanded by 0.5% in June 2023, beating a forecast of 0.2% growth. It follows monthly GDP growth of 0.1% in May and 0.2% in April. However, the strength of the June rise was partially attributed to warm weather, as well as the additional public holiday in May to celebrate the coronation of King Charles III.

Better than expected

GDP was lifted by 1.6% growth in manufacturing and 0.7% in production in the second quarter, while services grew by 0.1%.

The Office for National Statistics (ONS) noted strong growth in household and government consumption in terms of expenditure. Both faced price pressures in the quarter, though this moderated from the previous three-month period.

UK GDP up in June 2023
Growth in June 2023 was stronger than expected at 0.5%

Growth in June 2023 was stronger than expected at 0.5%, showing a recovery when the economy lost one working day due to the national holiday in May. June’s warm weather also benefited the construction industry as well as pubs and restaurants. But the economy was impacted by strike action by NHS workers, doctors, railway unions and teachers. However, the figures for the three months and June in particular were better-than-expected.

What does it mean?

Gross Domestic Product (GDP) is one of the most important tools for looking at the health of the economy, and is watched closely by the government and businesses. If the figure is increasing, that means the economy is growing and people are doing more work and getting a little bit richer, on average.

But if GDP is falling, then the economy is shrinking which can be bad news for businesses. If GDP falls for two quarters in a row, it is typically defined as a recession.

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China’s exports take a dive!

China’s exports plunge

According to latest figures the country’s trade fell more sharply than expected in July 2023, as both global and domestic demand receded amid the pandemic and ongoing tensions with the United States.

China’s exports fell by 14.5% in July 2023 from a year ago, the biggest drop since February 2020, while imports dropped by 12.4%, according to Chinese data. This was much worse than the 5% decline in both exports and imports analysts were expecting.

Poor trade performance

Some of the reasons for the poor trade performance are the rising costs of raw materials, the global shortage of semiconductors, the Covid-19 outbreaks in some regions, and the U.S. sanctions on some Chinese companies. 

China’s trade with the U.S., its largest trading partner, fell in the first seven months of the year. The trade slump has added pressure on China to provide more support for the economy, which has lost momentum after a strong recovery in late 2020 and early 2021.

China’s trade drop July 2023 more than expected

China’s trade situation is also closely watched by other countries, as it reflects the health of the global economy and demand for goods. Some analysts have warned that China’s trade slowdown could signal a broader weakening of consumer spending in developed economies, which could lead to recessions later this year.  China’s trade data also has implications for inflation and monetary policy, as lower import prices could ease inflationary pressures and allow central banks to keep interest rates low.

China’s export to the U.S. and EU down

China’s exports to the U.S. plunged by 23.1% year-on-year in July 2023, while those to the European Union fell by 20.6%, CNBC analysis of customs data showed. Exports to the Association of Southeast Asian Nations fell by 21.4%, according to the data. Chinese imports of crude oil dropped by 20.8% in July from a year ago, while imports of integrated circuits fell by nearly 17%.

China’s imports from Russia fell by around 8% in July 2023 from a year ago, the data showed.

A slowdown in U.S. and other major economies’ growth has dragged down Chinese exports this year. Meanwhile, China’s domestic demand has remained subdued.

Growth areas

Among the few higher-value export categories that saw a significant increase in the first seven months of the year were: cars, refined oil, suitcases and bags. And for imports: paper pulp, coal products and edible vegetable oil were among the categories seeing significant growth in the January to July period from a year ago.

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Hunt – caught in a trap

Chancellor

According to the chancellor Jeremy Hunt, the UK economy is caught in a trap

The UK and other advanced economies are facing a low-growth trap that is hard to escape. This means that the potential growth of the economy, which depends on factors such as productivity, innovation, investment, and labour force, is very low and insufficient to meet the demand and expectations of the people.

Brexit

The UK economy has been hit by huge global shocks that have disrupted its normal functioning and recovery. These include the Covid-19 pandemic, which caused lockdowns, restrictions, and health crises; the energy crisis, which led to soaring gas prices and supply shortages; and the Brexit transition, which created uncertainty and trade barriers.

Inflation

The UK economy is also struggling with high inflation, which erodes the purchasing power of consumers and businesses. Inflation is driven by various factors, such as rising energy costs, global supply chain bottlenecks, labour shortages, and pent-up demand.

Chancellor
‘Don’t you just love numbers?’

The Bank of England has raised interest rates to 5.25% as of August 2023 – the highest level since 2008, to curb inflation and maintain price stability. The Bank of England inflation target is 2%.

The plan?

The chancellor reportedly has vowed to stick to the plan that he believes will bring down inflation and boost growth in the long term.

He said that he will unveil a plan in the autumn statement that will show how the UK can break out of the low-growth trap and become one of the most entrepreneurial economies in the world. He also said that he will not ‘veer around like a shopping trolley‘ and change course in response to short-term pressures.

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‘Everything is fine, nothing to see here!’

Downing Street No.10
Downing Street No.10
‘Everything is fine, nothing to see here!’

Dream or reality – did this really happen?

The party-gate scandal lead to SERVING members of the UK government being fined, including the then prime minster (since sacked by the party) – and the then chancellor of the exchequer (now our serving prime minister).

You really can’t make this stuff up.

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It rains in the UK!

It rains in the UK!

Why are we so surprised when it rains in the UK?

Latest reports suggest that the number of people heading out to the shops fell for the first time in July in 14 years as the UK struggled with one of the wettest months on record.

Overall footfall was down by 0.3% (that doesn’t seem high to me) – in the first drop in July since 2009, latest reports suggest. High Streets were hit hardest but shopping centres and retail parks got a boost in visitor numbers.

Not all bad

Soft play areas and cinemas have enjoyed a business boost. Also holiday parks are taking last minute bookings as discounts are offered.

Aside from the rain, the rising cost of living and rail disruption were also behind the fall. Shoppers have been battling with one of the wettest Julys on record, according to provisional reports.

Don’t be too surprised when it rains in the UK

High Streets in coastal towns were especially hard hit, with footfall dropping 4.6%, as the rain kept people away from beaches.

July’s figures also appeared to demonstrate the harsh reality of the impact of interest rate rises on consumers, combined with rain and the continuing transport and rail turmoil traveller have to endure in the UK.

Moving on

Digressing from the real report here, which is the slowdown in UK shopping habits due to the rain – we ought to remember that in the South West there is a hose pipe ban. This ban has been in force since summer 2022! And, the UK looses excessive amounts of water through leaks.

Ironic isn’t it. All that rain and we just don’t store enough! How do other ‘hot’ countries manage? Anyway, at least we can go shopping, or not as the case may be!

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UK house prices fall according to the Nationwide Building Society

UK House Price Drop

UK house prices dropped at their fastest annual pace for 14 years in July 2023, according to Nationwide.

The building society said house prices dropped by 3.8%, which is the biggest decline since July 2009. Nationwide said mortgage interest rates remain high, making affordability a difficult for house-buyers. Mortgage costs hit the highest level for 15 years in July 2023 as lenders grappled with inflation and uncertainty over rates set by the (BoE) Bank of England. The BoE recently raised interest rates by 0.5% to 5% in a belated efforet to curb rampant inflation which is currently well above the 2% target.

Average UK house £260,828

The average price of a home in the UK is £260,828 – 4.5% below the August 2022 peak. Many first-time buyers would welcome a drop in house prices, which have climbed in recent years, including during the pandemic.

But despite July’s fall, higher mortgage rates mean housing affordability ‘remains stretched‘, Nationwide said.

Real average house price data from 1975 – 2022*

*Indicative guide only (prices adjusted for inflation).

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Euro Zone GDP & Inflation Improves in July 2023

Cash

EU Inflation 5.3% July 2023

Euro zone inflation fell in July, and new growth figures showed economic activity picking up in the second quarter of this year, but economists still fear a recession.

Headline inflation in the EU was 5.3% in July, according to preliminary data released end of July 2023, lower than the 5.5% registered in June. However, it still remains substantially above the European Central Bank’s 2% target.

EU GDP

GDP growth accelerated in the second quarter, expanding by 0.3%, higher than the 0.2% expected by analysts.

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Oh no, not again!

UK Interest rate 5% and rising

The current interest rate in the UK is 5% as of June 2023.

This is the Bank Rate set by the Bank of England (BoE), which influences the interest rates that other banks charge borrowers and pay savers. The BoE has raised the Bank Rate 13 times in a row from 0.1% to 5% in a bid to control inflation, which is the rate at which the prices of goods and services increase over time. The BoE has a target of keeping inflation at 2%, but the current inflation rate is 8.7%, which is much higher than the target. This means that the purchasing power of money is decreasing and people have to pay more for the same things.

Summary

  • The Bank of England has increased the base rate to 5% – up from 4.5% in June 2023
  • It’s a bigger increase than most forecasters expected
  • The last time the base rate was 5% or higher was in 2008
  • Higher interest rates are intended to lower inflation, by giving mortgage-holders and consumers less to spend
  • The government’s target is to have inflation down to 5% by the end of the year
  • Rishi Sunak said: ‘I always said this would be hard – and clearly it’s got harder over the past few months’ – I am totally, 100%, on it, and it’s going to be OK‘
  • Seven of the nine members of the bank’s committee voted for the 5% rate – two wanted no change at all

Bank of England mission statement

Promoting the good of the people of the United Kingdom by maintaining monetary and financial stability.

Meet our new policy adviser

Well, the BoE has clearly done a good job here then with the UK interest rate now at 5%, again… and inflation at 8.7% after peaking at 11.1% in November 2022, a 41 year high! Great job!

And the UK PM said, ‘I always said this would be hard – and clearly it’s got harder over the past few months. I am totally, 100%, on it, and it’s going to be OK‘.

That’s good to know then – it’s going to be OK – so reassuring for borrowers! It’s going to be OK, so don’t worry!

Sorry PM, but that is so weak it’s bordering pathetic. Weren’t you the chancellor too?