Inflation, the cost-of-living crisis and growing warnings that a global recession may well be on the cards are the themes that have continued to dominate the headlines over the past weeks. The Office for National Statistics (ONS) confirmed today that the UK economy grew by 0.8% in January-March and that UK households suffered another fall in real incomes in Q1 (-0.2%)[i]. Inflation outpaced earnings again in January-March, for the fourth quarter in a row, as UK households endured the longest decline in real income on record. In other data released today by Nationwide, UK house price growth continued to slow in June as the weakening economy, the cost-of-living squeeze, and rising interest rates cooled the market[ii]. The Nationwide House Price Index shows that annual house price growth eased to 10.7% YoY in June, down from 11.2% in May and Most regions saw slight slowing in annual growth in Q2.
Chart of the month: UK business investment, chained volume measure, seasonally adjusted
Source: Office for National Statistics, Blend Network[iii]
Politics & Economics
- The UK economy shrank in for the second successive month April. GDP declined by 0.3%, adding to the 0.1% decline in March. Services (-0.3%), production (-0.6%), and construction (-0.4%) all shrank in April. This is the first time that all main economic sectors have contributed negatively to a monthly GDP estimate since January 2021. That said, the decline in services was the main contributor to April’s decline in GDP[iv].
- Multi-decade high inflation combined with low growth means that we may be on the throes of labour unrest not seen for decades[v]. This was evidenced last week in the railways and London Underground strikes, and threat of further strike action to come.
- Business sentiment is waning. According to the ONS Business Insights and Conditions Survey, in the two weeks ending 3 April, 87.0% of respondents had high or moderate confidence their business would survive the next three months. In the two weeks ending 29 May, 20.4% of respondents thought their business’s performance would increase over the next 12 months and a significant 11.7% thought it would decrease[vi].
- Retail sales contracted in May as consumers tightened their belts amid a deepening of the cost-of-living crisis, fuelling concerns about a downturn in the UK economy[vii].
- While UK house prices continued to advance in June, posting their tenth successive monthly increase, the rate of growth continued to slow. According to the Nationwide House Price Index, average house prices advanced by 10.7% year-on-year in June, down from 11.2% in May and from the 18-year high of 14.3% witnessed in March[viii].
- According to the FT[ix], the housing market has started to slow, with a growing number of sellers having to cut asking prices and the average time to sell a home lengthening. According to Zoopla, more than one in 20 homes for sale had their asking prices slashed last month, by an average of 9%, the highest level of discounting in 18 months.
- Amid warning that the risks of a global recession have materially increased, stocks have continued to take a hit in June. The S&P500 is down by over 5% so far in June[x], and the tech-heavy Nasdaq is also down by nearly 5% in a third consecutive month of decline[xi]. Meanwhile, the UK FTSE100 index is down by in excess of 3% this month.
FX & Commodities
- UK petrol prices have hit fresh records this month with signs that demand is faltering. According to Bloomberg, average UK diesel price at the pump closing in on £2 a litre, but sales are lower than when some lockdown measures were in place[xii].
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[i] Source: https://bit.ly/3y8fDvk
[ii] Source: Nationwide House Price Index, https://bit.ly/3QSu7It
[iii] Source: Office for National Statistics, https://bit.ly/3I2W1gF
[iv] Source: Guardian, https://bit.ly/3R63cJp
[v] Source: FT, https://on.ft.com/3OGEehm
[vi] Source: House of Commons Library, https://bit.ly/3bz2nsa
[vii] Source: FT, https://on.ft.com/39VDiHh
[viii] Source: Nationwide House Price Index, https://bit.ly/3MU7ujt
[ix] Source: FT, https://on.ft.com/3Hokg8X
[x] Source: Investing, https://bit.ly/3yrA6wo
[xi] Source: Investing, https://bit.ly/3nnKgYY
[xii] Source: Bloomberg, https://bloom.bg/3nuvIXg