ECONOMIC OUTLOOK
INFLATION hit a six-year high of 2.9% in August, a significant increase from July’s level of 2.6% and above consensus estimates of 2.8%. Prices were pushed up both by input prices increasing and by firms passing part of that extra cost on to consumers.
The pound rallied by 0.6% against the dollar on the news as investors anticipate a higher likelihood of a rate hike to dampen inflationary pressures. However, most think a hike is unlikely as soon as this Thursday’s meeting at the Bank of England. Nevertheless, it gives ammunition to the more hawkish economists calling for a hike sooner rather than later.
House prices were 1.1% higher in August than in July, with the annual increase at 2.6%, according to Halifax.
“Recent figures for mortgage approvals suggest some buoyancy may be returning to the housing market, possibly on the back of strong recent employment growth,” said Russell Galley, managing director at Halifax.
Activity in the UK’s services sector hit an 11-month low in August, according to IHS Markit’s purchasing manager’s index (PMI), which fell to 53.2 from 53.8 in July, with consumer-facing sectors such as hotels, restaurants the hardest hit.
Meanwhile, data from the Office for National Statistics (ONS) showed total UK construction output declining 0.9% in July compared with June, the fourth monthly decline in a row. On an annual basis, construction output was 0.4% lower. However, UK manufacturing started the third quarter on a stronger footing after contracting earlier in the year. According to the ONS, total industrial production increased 0.2% in July compared with June (and was up 0.4% year on year), with manufacturing – the biggest sub-sector – up 1.9% year on year.
And the British Retail Consortium (BRC) said UK retailers had their strongest year-on-year growth since Easter, with like-forlike sales up 1.3% in August. However, the growth rate was flattered by the low level of activity last year.
Over the three months to August, non-food retail sales in the UK increased 0.6% like-forlike and 0.9% in total. However, in-store sales declined 1.4% on a total basis and 1.9% like-for-like, while online sales of non-food products grew 9%.
Helen Dickinson, chief executive of the British Retail Consortium, welcomed non-food items returning to growth as shoppers’ attentions turned to homewares, autumn clothing ranges and the new school year: “However, these figures tell a less positive story about the health of consumer spending than might seem at first glance. Non-food sales have only just recovered to levels seen two years ago.
“Purchasing decisions are very much dictated by a shrinking pool of discretionary consumer spend, with the amount of money in people’s pockets set to be dented by inflation and statutory rises in employee pension contributions.”