British economy ‘takes’ another step toward pre-pandemic level
Any spike in inflation is likely to be temporary, Fed officials reiterate Federal Reserve pledges ‘powerful support’ for economy
LONDON, July 10, (AP): The British economy took another step toward its pre-pandemic level following the latest easing of lockdown restrictions, though the 0.8% growth recorded in May was around half that expected by economists as a microchip shortage hurt car production.
Figures from the Office for National Statistics released on Friday showed the services sector to be largely behind the increase after a raft of hospitality, leisure and arts firms were able to reopen due to the relaxation of restrictions in England on May 17.
Though the British economy has now grown for four months in a row, May’s increase was lower than April’s 2.3% and below market expectations for a 1.5% rise.
“Underlying growth is moderate outside the sectors being unlocked, with supply constraints contributing to the continuing recent stagnation in manufacturing,” said Rory
Macqueen, an economist at the National Institute of Economic and Social Research.
Car production had a difficult month, suffering its biggest fall since the U.K. was first hit by lockdown measures last year. A shortage of microchips affected the sector, with output in the manufacture of transport equipment declining by 16.5% for the month.
Despite the run of monthly increases, the British economy remains 3.1% smaller than it was in February 2020, the month before the government first put lockdown measures in place to try to contain the coronavirus.
The UK experienced one of the world’s deepest recessions last year, shrinking by around 10%. Restrictions across the U.K. have been lifted over recent months following a monthlong winter lockdown and the rapid rollout of vaccines. The other nations of the U.K. - Scotland, Wales and Northern Ireland - are lifting restrictions slower than England.
The next easing of restrictions in England is due to take place on July
19. This will involve the lifting of all remaining lockdown restrictions that should further boost consumer-facing sectors.
“It’s great to see people back out and about thanks to the success of the vaccine rollout, and to see that reflected in today’s figures for economic growth,” Treasury chief Rishi
Sunak said.
However, the recent sharp uptick in new infections has raised concerns that the recovery may stutter during the summer, especially if it means many hundreds of thousands of people have to self-isolate and countless others opt to socialize less while cases are high.
WASHINGTON, July 10, (AP): The Federal Reserve says that its low interest rate policies are providing “powerful support” for the economy as it recovers from the coronavirus pandemic.
In its twice-a-year report to Congress on monetary policy released Friday, the Fed indicated that it plans to maintain that support until further progress is made in recovering from last year’s severe recession.
Progress on vaccinations helped to reopen the economy and produced strong economic growth over the first half of this year, the Fed noted. But the lingering effects of the pandemic still weigh on the economy, with employment well below pre-pandemic levels.
The central bank has kept its benchmark interest rate near zero, while continuing to buy $120 billion a month in Treasury bonds and mortgage-backed securities to put downward pressure on long-term interest rates. It said Friday that these efforts will help ensure that “monetary policy continues to deliver powerful support to the economy until the recovery is complete.”
The new report will be the subject of two days of hearings next week. Fed Chairman Jerome Powell will testify Wednesday before the House Financial Services Committee, and Thursday before the Senate Banking Committee.
Lawmakers will seek details on exactly when the central bank will start cutting back on its bond purchases, and when it will begin raising interest rates.
The report Friday repeated wording used by the central bank since last year, explaining that it does not expect to begin raising interest rates until its goals on maximum employment and inflation have been reached.
It also reiterated the Fed’s expectation that monthly bond purchases will remain at the level of $120 billion “until substantial further progress has been made” toward its employment and inflation goals.
Shortages of materials and difficulties in hiring have had held back activity in a number of industries, and bottlenecks so far this year and other transitory factors have boosted inflation, according to the report.
“Consumer price inflation has increased notably this spring as a surge in demand has run up again production bottlenecks and hiring difficulties,” the report read.
But the report repeated the view of Powell and other Fed officials that any spike in inflation is likely to be temporary.
“As these extraordinary circumstances pass, supply and demand should move closer to balance, and inflation is widely expected to move down,” the report stated.
However, the Fed report also stated that “upside risks to the inflation outlook in the near term have increased,” raising the possibility that the spike in inflation could last longer than first expected.
“The discussion of inflation developments emphasized the temporary, but likely more persistent than originally expected, inflation overshoot that was currently underway,” said Krishna Guha, an analyst with investment bank Evercore ISI.
Minutes of the discussions at the Fed’s last meeting in June showed that central bank officials began consideration of when and how they will start reducing the bond purchases but that no conclusions were reached. Most private economists don’t expect the actual bond tapering to begin until late this year or perhaps not until early in 2022.
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