The week ahead 29 July 2024 - UK business activity rises in July

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

The latest PMI Index data for the UK saw an increase in July, suggesting the commercial side of the economy is strengthening. The PMI index is based on a survey of firms, who answer questions on current trading conditions. The results are compiled into an index whose convention is a score over 50 points to growth. For July, the ‘flash’ UK composite PMI index read at 52.7, up from 52.1 in June, and slightly ahead of the consensus forecast figure of 52.6. This marks the ninth consecutive month that the index has been above the pivotal 50 level. The survey also reported that UK firms have seen a rise in new orders and are experiencing less inflationary pressures. Overall, the latest PMI index was consistent with an economy that is gaining momentum.

Last week, the Bank of Canada cut its policy rate by 25 bps to 4.5% – its second reduction this year. This Thursday the Bank of England Monetary Policy Committee (MPC) will announce its Base Rate decision, and the consensus view is that rates will remain on hold. Since the release of higher-than-expected services inflation data for June, the financial markets have been speculating the first UK rate cut might occur in September. Normally MPC members hint in their public statements if they believe the markets are calling it wrong, but they have not obviously spoken against the prevailing mood. However, as the PMI and recent GDP figures have shown, the UK economy does appear to be successfully adapting to higher interest rates.

This week will see the US Federal Reserve hold its policy rate meeting, with no change expected. Nationwide will release its UK house price index for July, and we believe that the lower mortgage rates available in recent weeks should have supported the market. In the Euro Area, data will be published on inflation and GDP. We see inflation accelerating slightly in July, although cost pressures in the economy are mostly being counterbalanced by weakening demand.

Things to watch for this week

Tuesday, July 30th

Euro Area GDP Growth, q-on-q, Q2

Previous: 0.3%
Forecast: 0.2%

Given recent survey evidence points to continued growth, we are expecting GDP growth in Q2 but at a slightly slower pace than Q1.

Wednesday, July 31st

US Federal Reserve Rate Decision, July

Previous: 5.25%-5.5%
Forecast: 5.25%-5.5%

While US inflation has eased lately, we believe the Fed will still want to see more data before it pivots towards supporting growth, so will leave rates on hold this week. We are forecasting a 25 bps cut in September.

Euro Area Inflation, y-on-y, July

Previous: 2.5%
Forecast: 2.6%

The latest Euro Area PMI survey mentioned rising inflationary pressures, leading us to predict a small increase.

Thursday, August 1st

Bank of England Rate Decision, August

Previous: 5.25%
Forecast: 5.25%

Given the MPC rate setters have not tried to dampen investors’ expectations that the first rate cut will occur in September, we are predicting no change at this meeting.

Nationwide UK House Price Index, y-on-y, July

Previous: 1.5%
Forecast: 1.6%

With mortgage rates starting to ease again, we are forecasting continued growth for house prices.