UK markets were little changed this week, with the FTSE 100 Index rising by 0.1% to trade at 7,550 points at the time of writing.
The Office for National Statistics revealed on Friday that UK GDP rose 0.2% higher in the period from April to June than in the previous quarter, and 0.4% higher than a year earlier. This followed an expansion of 0.1% in each of the previous two quarters, but still left quarterly GDP 0.2% below its pre-Covid peak.
The figures were slightly stronger than suggested by the Bank of England, which forecast a 0.1% expansion between he first and second quarters. Whilst the UK’s resilience is good news, the UK economy has expanded just 0.4% since the start of 2022, the weakest growth in 65 years outside of a recession.
UK consumer spending slowed in July, as wet weather reduced demand for summer clothing, leaving overall retail sales growth well below the rate of inflation. Figures from the British Retail Consortium trade body showed the value of retail sales rose at an annual rate of 1.5% in July, a weaker reading than the average of 3.3% in the three months to July, and the 12-month average of 3.9%. The figures were not adjusted for inflation, and these growth rates were lower than the rate of increase in consumer prices, which stood at 7.9% in June, indicating that sales fell in volume terms.
The latest data from the Royal Institution of Charted Surveyors released on Thursday found the outlook for the UK housing market is reaching levels not seen since 2009. The RICS Residential Market Survey, which measures the percentage of surveyors that are reporting house price increases versus declines, recorded a reading of -53% in July, down from -48% in June, its lowest level since the financial crisis.
The data echoes recent reports from Nationwide and Halifax suggesting that the Bank of England’s stream of 14 consecutive rate hikes and the consequent surge in mortgage costs are sharply weighing on the housing market.
Commodity markets
In the commodity markets, Brent crude futures traded around $86 per barrel on Friday, holding close to January highs, as speculation about another US interest rate hike faded following inflation data, and OPEC remained positive on the oil demand outlook.
Oil prices have been boosted in recent days by extensions to output cuts by Saudi Arabia and Russia, alongside supply fears driven by the potential for conflict between Russia and Ukraine in the Black Sea region to threaten Russian oil shipments.
OPEC announced on Thursday in its monthly report that it expected a healthy oil market for the rest of the year, and stuck by its forecast for robust oil demand in 2024, as the outlook for world economic growth slightly improves.
Meanwhile, recent data showed the consumer sector in China fell into deflation and factory gate prices extended declines in July, raising concerns about fuel demand in the world’s second-largest economy.
Gold traded around $1,920 an ounce on Friday, near one month lows, with bullion on course for its worst week in seven, as the US dollar and bond yields stood strong.
Equity markets
US equity futures were relatively flat on Friday as markets further assessed the Federal Reserve’s monetary policy outlook following new evidence of disinflation in the US economy.
In Thursday’s regular trading session The Dow Jones Industrial Average gained 0.15%, the S&P 500 Index rose 0.03%, while the Nasdaq Composite jumped 0.12%. The Bureau of Labor Statistics reported on Thursday that the US consumer price index rose 0.2% month on month in July to 3.2%.
This was a smaller than expected increase, which marked the slowest pace since March 2021, supporting the case for the Federal Reserve to hold interest rates steady at its next meeting in September.
Core inflation, which strips out the volatile food and energy components of the calculation, increased 0.2% during July, the same rate as the previous month. The annual figure was 4.7%, a slower pace than June, and the lowest level since October 2021. The monthly figures for both headline and core inflations were in line with expectations, while the annual figures were slightly below forecasts.
The data was encouraging for investors and increases the likelihood that the Federal Reserve will pause interest rate rises in September.
Elsewhere, a new executive order unveiled by President Joe Biden on Wednesday to ban some US investment into China’s quantum computing, advanced chips and artificial intelligence sectors, threatens to hurt recent efforts to try and stabilise relations between the two superpowers.
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