The UK economy outperforms the doomsayers

The UK economy outperforms the doomsayers

The Federal Reserve and the European Central Bank boosted interest rates this week. Markets are hopeful that the US interest rate hikes will now stop, albeit Jerome Powell isn’t saying much now. Meanwhile, the ECB is still trying to persuade markets that a pause isn’t coming anytime near. Analysts will be focusing on the UK economy now.

The Bank of England will make its decision next week, on Thursday. So, what could happen? Based on the most recent data on both jobs and inflation, a rate rise to 4.5% appears quite plausible. Inflation surprised to the upside once more. Besides, there are very tiny signs of the labor market softening. That way, pay growth has remained much too robust for the Bank’s liking. Having this in mind, the next steps seem a little tricky. Presently, the market anticipates a top of 4.75%, with a strong possibility of a last hike to 5% in September.

Of course, a lot will rely on where wages and inflation continue to go. This way, the labor market may begin to take precedence over the UK economy. The next inflation statistics will be released in the last week of May. It could possibly indicate a dramatic decline in the annual rate of inflation until April 2023.

The energy price cap change in the UK economy

It all comes down to the adjustment in the energy price cap, removed from the year-on-year comparison. To summarize, energy costs rose particularly significantly between March and April 2022, owing only to an increase in the energy price ceiling. It’s a little phony but no less traumatic for those who have to jump. That will not happen this year. As a result, inflation should be approximately 7-8%.

The indicators of the predicted decline are still important. However, in terms of headlines, it will relieve pressure on the Bank. Even if inflation remains higher than predicted, headlines will almost surely read something like “Sharp fall in inflation rate” or anything along those lines.

Here’s the economic outlook as of the latest report: The FTSE 100 is up roughly 0.5% at around 7,740 as of midday. Gold is down approximately 0.6% but remains near recent record highs at $2,040 per ounce. At the same time, crude oil is up 2% today, at around $74 per barrel. The pound is rising against the US dollar (as is the case with other currencies today), breaking over the $1.261 barrier. Basically, the main takeaway is the same as it has always been – ensure that your savings are taking advantage of higher interest rates.