Yesterday the UKs Latest GDP figures were released which proved to be disappointing coming in at 1.8% versus a consensus estimate of 5.5%. The services sector, the UKs largest sector which contributes to around 80% of GDP was the most noticeable only managing to rebound by 0.9%. The construction industry rebounded by 8.2% and manufacturing 8.4%. Retail sales proved interesting rebounding in June to 10.9% up from 7.9% in May which record online sales appear to be the key contributor.
As a result of the contractions since the lockdown began the UK economy is now 24.5% smaller than it was back in February this year. Jonathan Athow, economist at the ONS (office of National Statistics) suggested that although these figures may seem disappointing, we need to consider much of the economy has still not reopened and many restrictions are still in place. As these restrictions ease, we can expect to see signs of improvements in the coming months.
So, can the UK economy bounce back? Chancellor, Rishi Sunak announced last week he was prepared to do whatever it takes to get the economy back on its feet and protect people’s jobs as we safely reopen the economy. Sunak unveiled plans to invest 30bn into significant and targeted support to put people’s livelihoods at the centre of attention as we rebuild our economy.
This Thursday we see the release of Uk’s unemployment data with the consensus expected to be 4.2% up from previous months 3.9%. This will give us a good insight to how the pandemic is affecting unemployment levels.
Meanwhile at 6am this morning the UKs recent CPI data was released with the figure above expectations at 0.6% compared to the consensus of 0.4% and up from last month’s 0.5%. Food and Alcohol prices fell however prices for clothing and games rose said the ONS. This is the first rise in CPI this year as lock down measures ease. Despite the slight rise, inflation remains below the Bank of England’s 2% target.
German ZEW data released yesterday morning showed that German economic sentiment weakened in July. The data indicated economic sentiment fell to 59.3 in July down from 63.4 in June. This fell below market expectations of 60.0 however this appeared to have no impact on the strength of the euro and yesterday GBPEUR dropped below 1.1000 before rebounding to levels of 1.1015 at the time of writing.
After a very poor second quarter experts are still predicting a gradual increase in GDP for the second half of this year and early in 2021.
This Thursday we have the ECB meeting and interest rate decision, recent meetings have been gripping, introducing lower interest rates and a host of new policies to combat the induced Covid-19 economic slump but as the economy seems to be showing signs of improvement it looks like no changes will be made. ECB President Christine Lagarde highlighted in a recent interview with the Financial Times “The ECB is unlikely to announce more stimulus measures for now, we have already done so much that we now have time to assess the upcoming economic data”.
The US has come under criticism recently for its handling of the Covid-19 Pandemic amid a spike in Covid-19 cases, rumours of a second wave means hopes of a speedy recovery for the US is now fading. According to recent data from the John Hopkins University the number of new cases in the US has now risen to 3,364,547 and 135,615 deaths. Many governors rushed to reopen economies before controlling the pandemic and as such many states such as Florida, California, Texas and Arizona have seen a spike in cases and more than 70% of the country has had to pause or reverse reopening plans according to a report by Goldman Sachs.
After a surprising recent couple of months where the US managed to regain around 7.5 million jobs Morgan stanley reported the US may have to start shedding jobs again which could be detrimental to the US economy, the 7.5 million figure previously only accounted to one third of the total number of jobs lost.
“The pandemic remains the key driver of the economy’s course of recovery”, Fed Governor Brainard said in a recent speech. Brainard has called for the U.S. central bank to commit to providing sustained accommodation through forward guidance and large-scale asset purchases, and said additional fiscal support would be “vital” to the strength of the recovery - particularly with the first round of pandemic economic support programs expiring soon. Look for volatility in the coming months.
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