UK inflation rises for the first time this year

Inflation rose for the first time in 2024 this July, rising to 2.2%

The pound found support against the US dollar yesterday following a better-than-expected UK unemployment rate, which fell unexpectedly to 4.2%, while average earnings grew more than expected.

Adding to the US dollar’s weakness, the producer price index rose by 2.2%, slower than expectations of 2.3% and June’s reading of 2.7%.

The UK inflation rate rose to 2.2% in July from 2% in June and below forecasts of 2.5%. The data showed that core CPI inflation softened to 3.3% in July from 3.35%.

Following this morning’s inflation reading, the pound reversed half of yesterday’s gains, however, remains close to 1% higher against the US dollar since this time last week.

The German economic sentiment index plunged from 41.8 points in July to 19.2 in August, drastically missing expectations of 32 and slipping to a seven-month low.

Speaking on the results, ZEW president Achim Wambach said “The economic outlook for Germany is breaking down.” The uncertainty surrounding the economy is due to the ambiguous monetary policy and growing concern about the conflict in the Middle East.

Bank of England policymaker, Catherine Mann appeared on the Economics Show with Soumaya Keynes podcast and said Britain should not be ‘seduced’ by price rises easing to the BoE’s target. She went on to share her fears of an “upward ratchet” effect as the cost of services continues to rise by more than 5% a year, which she felt was incompatible with keeping inflation sustainably at 2%.

This afternoon, the economic docket holds US core inflation and inflation figures for July. The latter is expected to remain unchanged at 3%.

Tomorrow morning, we’ll receive the latest figures on the British economy, however, economists forecast it to have stalled month-over-month in July.

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GBP: Reeves claims more to do

Following yesterday’s unemployment data, which dropped unexpectedly to 4.2% in the three months to June, chancellor, Rachel Reeves said, “There is more to do in supporting people into employment because if you can work, you should work.” She is to incorporate this approach into her first budget, which is due to be delivered on 30 October 2024.

GBP/USD: the past year

 

EUR: Euro approaches 7-month high

Yesterday, the euro approached January’s highs against the US dollar following lower-than-expected US wholesale inflation data. However, the US core inflation rate is expected this afternoon, which could support the greenback should the Bureau of Labor Statistics further lower rates.

GBP/EUR: the past year

 

USD: Small business optimism soars

The NFIB small business optimism index rose to 93.7 in July from 91.5 in June. This is the most optimistic businesses surveyed have been since February of 2022. Still, this reading marked the 31st consecutive result below the 50-year average of 98.

USD/EUR: the past year