As Rome burns, the Bank of England fiddles
This past week in the world of macroeconomics has been a whirlwind of mixed signals that could sway the Bank of England’s interest rate decision on August 1st.
Ironically, the week culminated with a communication blackout thanks to what’s been dubbed the ‘Biggest IT fail ever’ by none other than Elon Musk. Yes, the CHAPS system's meltdown on Thursday afternoon left home movers in a bind. It’s almost like we don’t need a super intelligent AI to upend humanity – just a chap named Gary in Runcorn with an ancient Commodore 64.
Inflation and Wage Growth
Wednesday’s headline: inflation held steady at 2%. You’d think this would hint at a potential rate cut next month, right? But wait, services inflation, a key metric for the MPC, stayed sticky at 5.7%. And the Bank of England detests anything sticky.
Thursday brought news of wage growth dipping to 5.7% for the three months to May. Markets sighed in disappointment, seeing it as insufficient to convince the Bank to cut rates – a rate cut that businesses and households are desperately yearning for.
The Cupboard is Bare
Friday’s harrowing real-world data, likely overlooked due to the global outage, painted a grim picture. Official figures revealed retail sales dropped by 1.2% in June, a far cry from economists' rosy predictions. The retail sector isn’t suffering due to bad weather, as some experts might claim. It’s the relentless battering of finances over the past four years – a pandemic, double-digit inflation, and a disastrous mini-Budget – that has emptied households' cupboard.
Grim Insolvencies Data
Friday also brought bleak insolvency statistics. In June 2024, 10,395 individuals in England and Wales went insolvent, 11% more than in May 2024, and a whopping 33% increase from June 2023. Company insolvencies also rose by 16% compared to May and 17% year-on-year.
The UK economy’s dire situation is written in bold red letters, but the Monetary Policy Committee seems unable to read it. Their sole obsession? That elusive 2% inflation target, which they’ve only hit 30% of the time since gaining independence in 1997. It’s like our central bank couldn’t hit a barn door with a banjo.
Rate Cuts Keep on Coming
But let’s end on a high note. Major lenders like Halifax, TSB, and NatWest continued slashing mortgage rates last week, much to borrowers' delight. The property market, resilient as ever, grew by 2.2% in the 12 months to the end of May, per the Land Registry.
Lenders seem to be banking on an imminent rate cut, looking more towards US Federal Reserve actions than their spreadsheets. A September rate cut in the US looks almost certain, and if history repeats itself, the Bank of England will follow suit. This could finally bring the support that businesses and households need, although, for many, it might be a case of too little, too late.
So, as Rome burns, Andrew Bailey and his crew at the Bank of England continue to fiddle away.
Your home may be repossessed if you do not keep up with repayments in your mortgage.
Comments