Pound stutters on weak economic data
Weaker than expected readings on the economy sent sterling tumbling earlier in the month, before the Bank of England gave the pound a shot in the arm after indicating it could raise interest rates from as early as August. Having opted to leave the cost of borrowing unchanged this month, Threadneedle Street still suggests the economy is stronger than official data appear to suggest. The manufacturing sector provided the worst of the bad news for the economy over the past month, putting pressure on the pound, after figures showed the worst month for output in five years. Despite rising in recent days, the pound is still worth more than 10% less now than on the eve of the Brexit vote.
FTSE 100 rocked by world trade fears
The FTSE 100 tumbled over the course of last month amid mounting fears over a global trade war triggered by Donald Trump’s trade tariffs. The president refused to exempt the European Union (including the UK), Canada and Mexico from steel and aluminium tariffs on imports from outside the US, while threatening $200bn (£151m) of additional tariffs on Chinese imports. The news rocked global stock markets as investors grow increasingly concerned over the actions, with the FTSE 100 losing more than 100 points in the past few weeks.
Better than expected
Inflation holds steady despite rising petrol prices
Despite petrol prices rising to the highest level for almost four years, UK inflation unexpectedly remained at a one-year low last month, helped by the falling cost of computer games, sweets and chocolate. Confounding economists’ forecasts for an increase, the consumer price index held steady at 2.4% in May for the second month running. The Office for National Statistics said the average price of petrol rose by 4.6p a litre between April and May to 125.3p last month – the highest level since October 2014 – while economists also said the rate of inflation could rise again in coming months.
Worse than expected
Trade deficit rises to second highest on record
Falling exports of machinery, pharmaceuticals and aircraft contributed to Britain’s trade in goods deficit unexpectedly ballooning by £2bn to £14bn in April from the month earlier. Economists had forecast the gap between what Britain imports from the rest of the world and sells overseas would shrink slightly. Taking into account trade in UK services, as well as goods, over the three months to April, the total trade deficit widened by £1.9bn to £9.7bn.
Better than expected
Service sector stages recovery, yet Brexit fears loom
The UK’s dominant services sector expanded more quickly than expected in May, according to the most recent data published over the course of the last month, in a sign that Britain could have come through the worst of this year’s slowdown. The latest snapshot from the IHS Markit/Cips UK Services PMI showed activity in the sector, which includes banks, restaurants and hotels, recovering to a three-month high. The construction and manufacturing sectors also recorded stronger-than-expected growth.
Worse than expected
Fall in wage growth despite low unemployment
Earnings growth unexpectedly dropped despite Britain continuing to record the lowest levels of unemployment since the 1970s, which economists reckon should usually help workers to demand higher pay. Pay growth including bonuses dipped by 0.1 points to 2.5%, while excluding bonuses, wage growth fell by a similar level to 2.8%. There was better news, however, from a rise in job numbers despite weak economic growth in recent months, with 146,000 more people in work between February and April than in the previous three months.
Better than expected
Royal wedding and sunshine spark spending spree
The royal wedding and warmer weather in May tempted consumers back to the shops, according to the latest figures published over the course of the last month, providing much-needed respite for Britain’s struggling retailers. After heavy snow and freezing weather earlier in the year, shoppers had stayed home but returned to the high street as the sun came out. The Office for National Statistics said sales rose by 1.3% in May from a month earlier, comfortably beating expectations for a rise of just 0.5%. There are also greater hopes for more spending ahead, should the World Cup encourage more shopping.
Better than expected
Government borrowing falls more than expected
Tax rises might be around the corner to fund Theresa May’s pledge to increase NHS spending by £20bn a year by 2024, yet the latest figures from the UK public finances show public sector borrowing falling further than expected. The budget deficit – the gap between income from tax and government spending – fell to £5bn in May from £7bn in the same month a year ago, beating economists’ forecasts. There was also a revision for the 2017-18 financial year by the Office for National Statistics, showing borrowing came in £1bn lower than previously thought.
Better than expected
House prices stage gradual recovery
House prices edged up from a five-and-a-half year low in May amid tentative early signs of more homes being brought to market, according to the latest snapshot from the Royal Institution of Chartered Surveyors. The Rics house price index, measuring the balance of surveyors expecting price rises against those forecasting a fall, rose to -3 in May from -7 a month ago, beating economists’ expectations. London continued to point to falling prices in the survey, while there were rising prices in the midlands and the north-west.
And another thing we’ve learned this month … Fears of a global trade war intensify
The prospect of a damaging global trade war appears to be edging ever closer, after Trump imposed steel and aluminium tariffs on the US’s traditional allies and raised the stakes in the trade standoff with China. Although economists believe the current round of tariffs can be contained, there are fears of an escalation that would have grave consequences for growth. The World Bank warned in the last month that greater trade tensions could be as bad for world trade as the financial crisis a decade ago. Meanwhile, economists at Oxford Economics said the impact of Trump’s latest threat – $200bn of additional tariffs on Chinese imports – could slow US and Chinese GDP growth by as much as 0.3% for both countries. The mounting tensions will worry Britain as ministers look to international markets to strike trade deals as the country leaves the EU.