The week ahead 27 August 2024 - Business Activity Increased in August

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

For the UK, last week saw good news on growth for the commercial side of the economy. The preliminary composite PMI, a business activity index, read at 53.4 in August, up from 52.8 in July and ahead of the consensus forecast of 52.9. Encouragingly, there was an increase in new orders while input costs fell. That price prices pressures are continuing to ease as demand strengthens will reassure the Bank of England that it made the right move with its August rate cut. The increase for the UK PMI was driven by both the Services and Manufacturing sectors, which points to broad-based growth. Overall, this was a robust set of figures that suggest the strong GDP growth seen in the first half of the year appears of have continued into Q3.

Of concern to the new Chancellor of the Exchequer will be the latest government finances figures. In July, public sector spending outpaced income by £2.2 billion, markedly exceeding the consensus forecast of £0.5 billion. The government is moving towards an autumn Budget that is already expected to be characterised by tax increases and spending cuts. Last week’s disappointing figures will add to the pressure on the Chancellor to announce more austerity measures in the Budget. Another concern for the new government will be a report in the Financial Times suggesting that some public sector unions want to see a reversal of the real terms decline for their members’ income seen in recent years. This could point to further industrial disputes ahead.

This week sees important data published abroad on inflation. In particular, the US PCE Index figure will be released, and this is the Federal Reserve’s main inflation measure for policy purposes. The US dollar has weakened lately as markets speculate that the Fed will cut rates in September. A slide in value for the dollar will ease inflationary pressures in the UK and the Euro Area.

Things to watch for this week

Friday, August 30th

UK Mortgages Approved, July

Previous: 60k
Forecast: 62k

Several indicators have pointed to a strengthening housing market over the summer, persuading us to forecast a small increase in mortgage approvals.

US PCE Inflation, July

Previous: 2.5%
Forecast: 2.4%

After the declines recorded for PPI and CPI inflation in July, we believe price pressures are easing across the economy. Consequently, we are predicting a decline for PCE inflation.

Euro Area Inflation, August

Previous: 2.6%
Forecast: 2.5%

Despite the policy rate cut in June, interest rates remain high by historic standards and therefore we are expecting inflation to decelerate further.

Euro Area Unemployment Rate, July

Previous: 6.5%
Forecast: 6.5%

With survey evidence pointing to slow growth in the economy, we believe the unemployment rate was little changed in July.