Overall inflation in the United Kingdom has dropped As expected, going from 3.5% in April to 3.4% of May. The Office for National Statistics, however, admitted a mistake in reading April, caused by the inaccuracy of some data from the Transport Department, which had led to an overestimation of 0.1 percentage points. Although the ons has chosen not to review the data, he comments Richard FlaxChief Investment Officer of Moneyfarmthe accident raised wider concerns About the reliability of UK economic data.
The data confirm the current position of the Boe
In light of the latest numbers, the analyst underlines, the United Kingdom still appears clearly late Compared to the European Union In the fight against inflation. The core inflation, which excludes the prices of food and energy from the basket, stood at 3.5%, still about 1.5 percentage points above the 2% lens set by the Bank of England. Although the direction of travel for interest rates is downwards, i policymaker remain cautious And the Consensus indicates a waiting approach, while families continue to undergo both the pressure of prices and that of the high financing costs.
The United Kingdom – adds the expert – still has to take different road before the bank of England can loosen Monetary policy in a more decisive way and today’s data only confirm the current position of the Boe who will make its monetary policy decisions, tomorrow 19 June.
Food prices continue to climb and fear war effect
To weigh on the general picture, The caravan remains in the food sectorwhose average prices are confirmed on the rise, and fears related to international geopolitical conflicts: aggravated by the opening of a new front between Israel and Iran, by the hypothesis of a US involvement and further repercussions on markets such as that of energy that could derive from an escalation.
For Kristina HooperChief Market Strategist, Man Group, who considers it obvious that the Bank of England will not change the interest rates in the meeting this week, the data relating to the British GDP, for the month of April, showed a flexion higher than the expected of 0.3% on a monthly basis, the strongest decline from October 2023 They pushed some market observers to express concerns about the prospects of the United Kingdom economy.
But, looking to the future, Is everything really so negative? The Citigroup Economic Surprise index for the United Kingdom does not suggest it at all. It is resumed (unlike that relating to other important economies, such as the US one), reflecting the fact that other recent macroeconomic data have been better than expectations. For example, April retail sales increased by 1.2% on a monthly basis, far exceeding forecasts.
The support of public spending will stimulate growth
Even more important, adds the analyst, is the package of tax stimuli arriving from the government. Last Wednesday, the Finance Minister Rachel Reeves He has published the three -year spending review, outlining how he intends to allocate expenditure. As for the current one, the government will focus mainly on health and, to a lesser extent, on defense and energy. Investments will be concentrated in sectors such as housing, transport infrastructure, energy and research and development. Most of these expenditure areas will probably have a high multiplier effect, which should have a more positive impact on the British economy.
The United Kingdom should also benefit from having already concluded a Commercial agreement with the United Stateswhich provides for relatively favorable conditions. This puts an end to most of the uncertainty in the field of economic policy, which historically was an obstacle to business investments. Overall, I provide that the United Kingdom will be able to overcome the GDP growth expectations of 1% for the current year.
The threat of stagflation
The risk greater is that the United Kingdom falls in stagflation. We have witnessed an increase in overall inflation higher than expected and inflation of services in the United Kingdom, it returned above 5% to April. There is the risk of a prolonged increase in inflationexplains Kristina Hooper, partly determined by increase in the cost of labor. Growth could therefore weaken if prices increased significantly and weakened the demand, causing a stagflation. However, I don’t think this is a probable scenario. Inflation could be high, but I foresee that this increase will be temporary, as anticipated by the Bank of England, and I believe that growth will also be higher than expected. This is not a stagflation context.
Effectively, Inflation could soon slow down for several reasons. The labor market is showing signs of loosening, which should curb the growth of wages. Besides theCommercial agreement between the United States and the United Kingdomwhich should help reduce inflation, the United Kingdom and The European Union they reached a “Reset agreement” which could lower costs in different ways. For example, the agreement provides for greater mobility between the two economies for young workers (obviously we are still awaiting the details of the plan, which will determine its effective impact).
Other central banks waited. In Sweden Tassi Tassi at 2%
The economic recovery started last year has lost momentum and the inflation will be expected to be slightly lower than the previous forecasts. This is what the Riksbank Board of Directors said, which today decided to reduce the reference rate of 0.25 percentage points, bringing it to 2%. It was a decision expected by analysts.
The board warned that the provision relating to the reference rate involves a certain probability of a further cut of the cost of money, this year and stressed that the lowest interest rate will stabilize inflation to the objective level and will help to strengthen economic activity.
The central bank cited i geopolitical conflicts and the announcements on duties who continue to influence developments abroad. “Although the financial markets have recently recorded a slightly lower variation and the duties on imports will be expected to be lower than announced at the beginning of April, the growth will be hampered in the short term”, warned RiksBank. “There is still a remarkable uncertainty about future developments, not least because of the escalation of the conflict in the Middle East”.
In Sweden, we read in the note that accompanies the decision, “there are favorable conditions for a strengthening of future economic activity, in part thanks to the increase in real wages of families”. However, “the recovery proceeds more slowly than expected. New information shows that the growth of the Swedish economy is weak, while unemployment remains high. It is expected that the remarkable uncertainty will also hinder the recovery in the short term”.
The eyes of investors are aimed at the monetary policy decisions of Other central banks that will meet between today and tomorrow: from Federal Reserve to Norges Bank and the Swiss National Bank.
From Bank of Japan Tassi Fermi at 0.5%
Yesterday, the Bank of Japan decided unanimously to leave the reference rate to 0.50%. The only novelty is the change of attitude compared to the purchases of the Japanese sovereign bonds (JGB), whose reduction rhythm will be slowed down compared to what was decided in March.
