Economic Highlights

GDP expanded by just 0.1% in July from June, which was disappointing relative to expectations (+0.6%). Labour supply issues were the main hindrance, as July saw the peak of the “pingdemic” before the rules were relaxed. Supply chain issues held back the construction sector. More surprisingly, the Services sector was flat too, but this seems to have been because a pick up in consumer service activity was offset by weaker professional services. In aggregate, all of that leaves UK economy activity still 2.1% below its pre-pandemic levels. We are definitely past peak recovery, but the trend of growth should remain higher.

Job openings rose by 749k in July to 10.934m, with health & social care leading the way, followed by leisure and hospitality. There are more jobs available, it seems, than people seeking jobs. That should keep the employment market strong through at least the rest of this year, although questions persist about how much employers are going to have to pay new recruits. That could be inflationary (and also a squeeze on margins) when there are already upward pressures on costs - the Producer Price Index rose slightly more than expected to +8.3% y/y in August.

The ECB left all of its policy rates unchanged at last week’s meeting, but did (as widely expected) announce that the pace of asset purchases under its Pandemic Emergency Purchase Programme would be reduced – effectively a “tapering” event. This was based on a positive assessment of financing conditions and the inflation outlook and therefore not unreasonable. Indeed, forecasts for growth and inflation were nudged up again. Like other central banks, the ECB is in the camp that believes that the current spike in consumer prices is transitory, although it is monitoring labour markets and wages for signs of a more persistent change in inflationary trends.

China’s Total Social Financing data for August showed an increase in both loans and money supply, with a decent increase from July, rising by 10.6% m/m. There was a strong pick up in corporate and government bond issuance. The PBOC had reminded banks in August of their need to maintain stable credit growth, and they took the hint. This should carry over into September. Policy remains supportive without being profligate, bearing in mind the need to rein in potential asset bubbles.