Evelyn Reynolds

The U.K. economy continued to flatline in July on a month-on-month basis, flash figures published from the Office for National Statistics showed Wednesday.
Gross domestic product (GDP) came in below the expectations of economists polled by Reuters, who had forecast growth of 0.2%.
Britain’s dominant services sector showed slight growth of 0.1% in the month to July, while production and construction output fell 0.8% and 0.4%, respectively.

Maremagnum | Corbis Documentary | Getty Images

LONDON — The U.K. economy continued to flatline in July on a month-on-month basis, flash figures published from the Office for National Statistics showed Wednesday.
Gross domestic product (GDP) came in below the expectations of economists polled by Reuters, who had forecast growth of 0.2%.

The country also logged no GDP growth in June.
Britain’s dominant services sector showed slight growth of 0.1% in the month to July, while production and construction output fell by 0.8% and 0.4%, respectively.
Britain’s economic growth was up 0.5% in the three month to July, slightly below economist expectations and the 0.6% recorded in the second quarter ending in June.
“The economy recorded no growth for the second month running, though longer term strength in the services sector meant there was growth over the last three months as a whole,” Liz McKeown, director of economic statistics at the ONS, said.
The U.K. economy had recorded modest but steady expansion almost every month so far this year, having emerged from a shallow recession at the start of the year.

The reading is the first under Prime Minister Keir Starmer’s new Labour government, which was elected on July 4.
Finance Minister Rachel Reeves said the print left her “under no illusion” of the challenges faced by the U.K. economy.
“I will be honest with the British people that change will not happen overnight. Two quarters of positive economic growth does not make up for fourteen years of stagnation,” Reeves said.
It comes ahead of the forthcoming Oct. 30 Autumn Statement, when Reeves will reveal her annual budget. She has already warned will be painful after she said she inherited a £22 billion ($29 billion) hole in the public finances from the former Conservative government. He predecessor Jeremy Hunt has denied the claims, describing the alleged black hole as “fiction.”
Lindsay James, investment strategist at Quilter Investors, said the prospect of tax raises could add further caution to consumer spending over the coming months.
“Tax rises have been flagged ahead of the Autumn Budget, and consumers and businesses may feel rather more cautious heading into the winter months as they await details from the Treasury,” she said.
But she added that further movement in interest rates anticipated from the Bank of England could help ease wider growth pressures. The central bank is set to meet next week for its latest policy decision, after cutting rates for the first time in four years last month.
“This month may just be a blip however, given recent positive noises that have been sounded about the state of the wider economy, especially as rate cuts will continue to be delivered over the coming year,” James noted. More

The Fed gets its last look this week before its policy meeting next week at inflation readings that will help determine the size of widely anticipated interest rate cuts.
Friday’s jobs report provided little clarity on the issue, so it will be left to the consumer and producer price index readings to help resolve the matter.
The focus for Fed officials has shifted, from a laser view on taming inflation to mushrooming fears over the state of the labor market.

People shop at a store in Brooklyn on August 14, 2024 in New York City. 
Spencer Platt | Getty Images

The Federal Reserve gets its last look this week at inflation readings before it will determine the size of a widely expected interest rate cut soon.
On Wednesday, the Labor Department’s Bureau of Labor Statistics will release its consumer price index report for August. A day later, the BLS issues its producer price index report, also for August, a measure used as a proxy for costs at the wholesale level.

With the issue virtually settled over whether the Fed is going to cut rates when it wraps up the next policy meeting Sept. 18, the only question is by how much. Friday’s jobs report provided little clarity on the issue, so it will be left to the CPI and PPI readings hopefully to clear things up.
“Inflation data has taken a backseat to labor market data in terms of influence on Fed policy,” Citigroup economist Veronica Clark said in a note. “But with markets — and likely Fed officials themselves – split on the appropriate size of the first rate cut on September 18, August CPI data could remain an important factor in the upcoming decision.”
The Dow Jones consensus forecast is for a 0.2% increase in the CPI, both for the all-items measure and the core that excludes volatile food and energy items. On an annual basis, that is expected to translate into respective inflation rates of 2.6% and 3.2%. PPI also is projected to increase 0.2% on both headline and core. Fed officials generally put more emphasis on core as a better indicator of longer-run trends.

At least for CPI, the readings are not particularly close to the Fed 2% long-run target. But there are a few important caveats to remember.
First, while the Fed pays attention to the CPI, it is not its principal yardstick for inflation. That would be the Commerce Department’s personal consumption expenditures price index, which most recently pegged headline inflation at 2.5% in July.

Second, policymakers are as concerned about the direction of movement almost as much as the absolute value, and the trend for the past several months has been a decided moderation in inflation. On headline prices in particular, the August 12-month CPI forecast would represent a 0.3 percentage point decline from July.
Finally, the focus for Fed officials has shifted, from a laser view on taming inflation to mushrooming fears over the state of the labor market. Hiring has slowed considerably since April, with the average monthly gain in nonfarm payrolls down to 135,000 from 255,000 in the prior five months, and job openings have declined.

A baby step to start

As the focus on labor has intensified, so has the expectation for the Fed to start rolling back rates. The benchmark fed funds rate currently stands at 5.25% to 5.50%.
“The August CPI report should show more progress in getting the inflation rate back down to the Fed’s 2.0 percent target,” wrote Dean Baker, co-founder of the Center for Economic and Policy Research. “Barring some extraordinary surprises, there should be nothing in this report that would deter the Fed from making a rate cut and quite possibly a large one.”
Markets, however, seem to have made their peace with the Fed starting out slowly.

Futures market pricing on Tuesday indicated 71% odds that the rate-setting Federal Open Market Committee will kick off the easing campaign with a quarter percentage point reduction, and just a 29% chance of a more aggressive half-point cut, according to the CME Group’s FedWatch.
Some economists, though, think that could be a mistake.
Citing the general pullback in hiring coupled with substantial downward revisions of previous months’ jobs counts, Samuel Tombs, Pantheon Macroeconomics’ chief U.S. economist, thinks the “summer slowdown probably will look even sharper in a few months’ time,” and the downtrend in hiring “has much further to run.”
“We’re therefore disappointed — but not surprised — that FOMC members who spoke after the jobs report, but before the pre-meeting blackout, are still leaning towards a 25 [basis point] easing this month,” Tombs said in a note Monday. “But by the meeting in November, with two more employment reports in hand, the case for rapid rate cuts will be overwhelming.”
Indeed, market pricing, while indicating a tepid start to cuts in September, projects a half-point reduction in November and possibly another in December.

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JPMorgan Chase CEO Jamie Dimon said Tuesday he wouldn’t rule out stagflation.
Dimon’s comments come at a time when investors are turning their attention to signs of slowing growth as inflation has shown signs of cooling.
He said he worries that a raft of inflationary forces on the horizon, such as higher deficits and increased infrastructure spending, will continue to add pressure to an economy still reeling from the impact of higher interest rates.

Jamie Dimon, Chairman and Chief Executive officer (CEO) of JPMorgan Chase & Co. (JPM) speaks to the Economic Club of New York in Manhattan in New York City, U.S., April 23, 2024. 
Mike Segar | Reuters

JPMorgan Chase CEO Jamie Dimon said Tuesday he wouldn’t rule out stagflation, even with greater confidence recently that inflation is coming off its highs.
“I would say the worst outcome is stagflation — recession, higher inflation,” Dimon said at a fall conference from the Council of Institutional Investors in Brooklyn, New York. “And by the way, I wouldn’t take it off the table.”

The chief executive of the largest U.S. bank makes his comments at a time when investors are turning their attention to signs of slowing growth. Recent readings showed pricing pressures increasingly on their way to the Federal Reserve’s 2% inflation target, but reports on employment and manufacturing have revealed some signs of softening.
Investors will get some additional key data this week, with the consumer price index and producer price index coming Wednesday and Thursday, respectively.
But Dimon worries that a raft of inflationary forces on the horizon, such as higher deficits and increased infrastructure spending, will continue to add pressure to an economy still reeling from the impact of higher interest rates.
“They’re all inflationary, basically in the short run, the next couple of years,” Dimon said. “So, it’s hard to look at [it] and say, ‘Well, no, we’re out of the woods.’ I don’t think so.”
The bank leader has previously warned of an economic slowdown. In August, he said the odds of a “soft landing” were around 35% to 40%, implying a recession is the more likely outcome.

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