Did the British economy contract in the second quarter?

Did the British economy contract in the second quarter?

Britain’s economy is expected to contract slightly in the second quarter as it heads into a recession of the magnitude not seen since the 1990s later this year.

Economists polled by Reuters expect a report on Friday to show output contracted 0.2% between the first and second quarters. Gross domestic product is expected to have fallen by 1.3% between May and June, affected by the additional Jubilee holiday and partially reversing the May expansion.

This follows growth of 0.8% in the first quarter, with the slowdown reflecting the impact on household finances from soaring energy prices.

Last week, the Bank of England lowered its UK economic forecast as it raised interest rates by the largest margin in nearly 30 years.

After some growth in the third quarter, the bank said the UK is expected to enter recession from the fourth quarter of this year and continue to contract until the end of 2023. After that, growth is expected to be ” very low compared to history”. standards,” the bank said.

This is a significant downward revision from the May valuation, following the renewed spike in gas prices which reflects the protracted war in Ukraine and gas supply cuts to Europe. .

“The big picture is that the economy is still on track to be smaller in 2025 than it was in 2019, before the pandemic,” said Thomas Pugh, an economist at consultancy RSM UK. . “The much weaker economy is likely to create more unemployment.” Valentina Romei

Is the US core CPI neglected?

Headline inflation captures the highly visible food and oil categories that bite into consumers’ wallets when prices soar, but the U.S. core consumer price index – which excludes these volatile categories – is expected to top the headline figure in July and could continue to do so months from now. come.

Economists polled by Reuters expect headline inflation in the United States to rise 0.2% month-on-month from June to July, while core CPI is expected to rise by 0, 5%. The report is due Wednesday.

Derek Holt, head of financial markets economics at Scotiabank, sees core CPI as the number that can most clearly show the persistence of inflation in the United States. He said the United States may have already peaked in food and fuel inflation, but expects price growth for durable goods and some services to continue to pick up.

“We’re still in the phase that has a reopening effect on more volatile high contact service prices where people move in the summer and travel more,” he said.

House and vehicle prices, for example, could continue to rise as food and fuel prices plateau, especially after OPEC+ agreed to a slight increase in production last week. and that Ukraine and Russia have reached an agreement allowing Ukraine to export its grain to a market with limited supply. .

But heightened tensions between China and Taiwan could disrupt the island’s dominant semiconductor industry and spill over to the global economy.

“A disruption in Taiwan would strike at the heart of many durable and expensive manufactured items and bring many supply chains to a standstill,” Holt said, adding that he doesn’t expect that kind of blowout. Jaren Kerr

Will industrial production in the euro zone stagnate?

The eurozone is poised for a deceleration in economic activity as rising interest rates and soaring food and fuel prices caused by Russia’s war in Ukraine push the region into recession.

Eurozone industrial production data for June is due out on Friday and will show the impact of soaring energy prices and prolonged supply chain disruption on industrial production. The May figure beat analysts’ expectations, with industrial production up 0.8% on a monthly basis, but analysts now expect it to stagnate in June.

“Eurozone activity is deteriorating across the board, across sectors and countries,” said analysts at Barclays, who expect the bloc to fall into recession by the end of this month. the year.

German manufacturing orders fell in June as the euro zone’s largest economy grappled with supply chain issues and disruptions stemming from the war in Ukraine. Analysts and economists generally expect the region to slip into recession as commercial and industrial activity declines and consumer spending slows, driven by the cost of living and the economic crisis. energy price. Nikou Asgari