The week ahead 22 July 2024 - Doubt grows on an August Base Rate cut

What to watch out for in the UK economy and property market this week.

Last week saw UK CPI inflation figures that prompted the financial markets to speculate September rather than August was more likely to see the first Bank of England Base Rate cut. While the headline inflation figure stayed unchanged at 2.0%, both core and services inflation also flatlined confounding expectations of small declines. For months now, pundits have expressed concern at the slow pace of deceleration for services inflation, and rate setters are believed to be closely watching this indicator. As the September Bank of England rate meeting falls on the 19th of that month, delaying until then would allow rate setters to see another two sets of inflation figures (July and August) to inform their decision. At its policy meeting last week, the European Central Bank left interest rates unchanged.

The June UK retail sales figures proved to be a disappointment, with a -1.2% fall on the previous month reported. This was well below the consensus forecast of a -0.4% drop. Once again, poor weather depressed footfall, with department stores and clothing retailers particularly hard hit. Given the high levels of rainfall seen in early July, there is now a risk that many fashion retailers might find themselves having to sell large volumes of summer clothes at a discount as the next season approaches. Separately, that latest GfK UK consumer confidence index showed a modest improvement in July from -14 to -13.

Regarding Friday’s global IT outage, it is too early to judge the extent of the impact on the economy, although it might be similar in scale to applying an extra bank holiday to the July GDP figures. The disruption is widespread and extends across several major industries, so the aftermath will be costly. This is a timely reminder of the growing importance to the global economy of resilience for critical IT infrastructure. Further down the line this outage could lead to more firms and public sector organisations investing in IT equipment and services. That would boost activity for the tech industry; as well as tech-related real estate, like data centres.

Things to watch for this week

Wednesday, July 24th

UK ‘Flash’ Composite PMI, July

Previous: 52.3
Forecast: 52.9

With inflation back to target and the political uncertainty of the general election behind us, we are forecasting a small increase in July.

Thursday, July 25th

US GDP Growth, q-o-q annualised, Q2

Previous: 1.4%
Forecast: 1.9%

Falling inflation between April and June in our opinion will have helped increase spending power for businesses and consumers, leading us to predict an improvement for GDP growth for Q2.

Friday, July 26th

US PCE Price Index Inflation, June

Previous: 2.6%
Forecast: 2.5%

In part thanks to lower petrol prices, but also due to a wider easing of price growth across many products, we are forecasting a further deceleration for PCE index inflation.