Late to the party

UK GDP was soft during the summer, but the outlook is still upbeat. And falling interest rates are visibly transforming the fortunes of the housing market. The ECB's rate cut was expected, with a potential further cut in December as President Lagarde remains optimistic about future inflation trends and improved productivity. It feels a long time coming, but this week looks set to be the turn of the US. The question is how much will rates be cut (and how much will the Fed guide on future cuts). On the other hand, China's rising deflationary risks highlight a challenging economic environment. One where the stimulus dial might be needing turned up!

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Check out a glossary of key terms here .

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What’s the latest in the UK?

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GDP remained flat in July, after also being unchanged in June. This stagnation stemmed from mixed sectoral results: while services added to growth with a 0.1% increase, driven by rebounding retail sales and fewer strike days; manufacturing and construction experienced declines. Manufacturing output fell 1.0%, with notable weakness in machinery and energy use. Construction dropped 0.4%, largely due to reduced public housing work. A rebound in GDP is anticipated for August, buoyed by a recovery in manufacturing and construction and rising consumer spending, supported by expected interest rate cuts and a more stable environment. However, the overall pace of GDP growth will likely be slower than the robust pace experienced in the first half of the year. Read more here .

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Soft landing is still on the menu. Average weekly earnings growth slowed to 4%y/y in the three months to July, the weakest level since November 2020. This reduction is broad based as increases in both regular pay and bonuses softened across all sectors except construction. The unemployment rate fell to 4.1% in July from 4.2% - in-line with expectations, bolstered by a higher-than-expected pace of hiring. Employment growth, according to the Labour Force Survey, improved to 265k in July, strengthening from last month’s 97k. Vacancies fell to the lowest level since April ’21, whilst redundancies remain in historically low territory at 82k in the three months to July. The data is consistent with the broad picture of a gradually loosening labour market and a central bank that can continue cutting rates. Read more here .

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Recruitment data shows falling demand for candidates. August’s KPMG-REC jobs survey shows permanent placements fell sharply to a five-month low (index at 44.6, below 50, indicating decline), while temporary billings also saw a decline. Candidate availability rose further (index at 59.8, above 50, indicating an increase), partly due to redundancies, especially for temporary roles. Job vacancies decreased for the tenth consecutive month (index 49.0), reflecting reduced demand. Wage growth for permanent roles slowed notably to 54.4, the weakest since March, while temporary pay growth also eased. Overall, these trends indicate growing uncertainty and caution among employers, impacting recruitment plans across sectors. Read more here .

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Britain's trade deficit widened to ￡14.6bn in the three months to July. Exports plummeted by ￡3.4bn (10.8%) in July alone, driven by a slump in chemical shipments to both EU and non-EU partners. Imports also fell, but less dramatically (by ￡1.5bn or 3.0%). The data paint a gloomy picture of UK trade performance, with the goods deficit expanding by ￡5.5bn (11%) over the three-month period. Services fared better, with the surplus inching up by 1%. As global economic headwinds persist, policymakers face an uphill battle to reverse Britain's declining trade fortunes. Read more here .

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August’s rate cut spurs housing market pickup. The net balance of surveyors reporting house price growth – a reliable leading indicator of house price movements – jumped back into positive territory for the first time in nearly two years in August. The +1 reading, while modest, implies house prices are already comfortably growing at a low single digit rate. That may accelerate: surveyors are becoming increasingly confident of price growth over the next three and 12 months. With buyer demand strengthening and enquiries rising faster than sale instructions for the third month running, that looks a reasonable bet. Read more here .

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What’s the latest in the Eurozone?

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ECB likely to ease policy gradually. The ECB lowered its deposit rate by 25bps to 3.50%, which was fully anticipated, with financial markets showing little reaction. The policy statement and press conference did not alter the view that a further rate cut is more likely in December, though October remains a possibility. The ECB's economic forecasts saw minor adjustments, with core inflation projected to rise slightly and GDP growth trimmed due to weaker domestic demand. President Lagarde highlighted persistent domestic and services inflation but remained optimistic about a decline in underlying inflation in 2025, supported by moderating wage inflation and improved productivity. Read more here .

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What’s the latest in the US?

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US inflation slows, but not enough for clear policy direction. The Fed is almost certain to cut rates this week. The question is by how much? The jury’s spilt between 25bps and 50bps, and last week’s US inflation figures provided no clear direction. Annual inflation fell to 2.5%, the weakest rise since February 2021. But ‘core’ inflation, which strips out food and, importantly, energy, was up 0.3% on the month and 3.2% annually. With the labour market softening the Fed almost had the full bingo card to go bold. Now it’s too close to call. Read more here .

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What’s the latest in China?

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China’s exports shine but deflationary risks build. Overseas shipments from China rose 9% y/y in August, ahead of estimates. And it was geographically broad-based – exports to almost every market grew – while the country’s car export juggernaut shows no sign of let-up. The value of vehicle exports hit a record, rising by a third compared to last year (and are up 10x this decade). That will likely continue to fuel trade tensions. But imports rose just 0.5% y/y, underlining a weak domestic demand story, which is reflected in mounting evidence that China is slipping into deflation. Core consumer price inflation rose just 0.3% y/y in August, while producer prices extended their deflationary run to 23 months. Even a former central bank governor has talked about rooting out deflation has to take priority. Comparisons with Japan’s deflation experience mount. Read more here .