We now have the data we need to have a pretty good idea of how well – or badly – the UK economy did in July. And now the Bank of England has spoken too, with a warning about investment.
The latest purchasing managers index from Markit/CIPS, covering UK services was okay, with the headline index, the Business Activity Index, rising to 53.8 from 53.4 the month before.
Combine the readings with readings from purchasing managers indexes tracking manufacturing and construction, and it seems the UK economy grew at a pace consistent with quarterly growth of 0.3 per cent.
The UK remains one of the slowest growing economies in Europe.
Meanwhile, the Bank of England has been busy.
Its rate setting committee – The Monetary Policy Committee – has been meeting and voted to keep interest rates on hold. More to the point, this time, just two members voted for higher rates – the MPC arch hawk, Kristin Forbes who had voted for higher rates three times this year – is no longer on the committee.
But the bank also released its Inflation Report.
The bank is fretting about low business investment. The governor, Mark Carney said: “if the MPC’s current forecast comes to pass, the level of investment in 2020 is expected to be 20 per cent below the level which the MPC had projected just before the referendum.”
Low investment will hit the UK capacity and the lower that capacity the less the potential for growth, Mr Carney warned that as a result, even a modest rise in growth may be enough to force the Bank of England to increase rates.
On the news that only two members of the MPC voted for higher rates, the pound fell quite sharply.
Paresh Davdra, CEO and Co-Founder of RationalFX said: "With recent economic data proving disappointing, and the Bank of England believing that it is unrealistic to see pre-Brexit levels of growth, analysts may find the pound once again beset by uncertainty in the coming months.”
Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics said: "The MPC’s minutes and latest forecasts lack the hawkish tone to warrant markets’ prior pricing of a 45 per cent chance of a rate rise by the end of this year. The Committee revised down its forecast for GDP growth this year and next to 1.7 per cent and 1.6 per cent, respectively, from 1.9 per cent and 1.7 per cent in May. And while the MPC revised up its near-term profile for inflation—it now sees CPI inflation peaking at 3 per cent, not 2.8 per cent, in October— it only nudged up its 2018 forecast to 2.5 per cent, from 2.4 per cent, and kept its 2019 forecast at 2.2 per cent. The impact of sterling’s renewed depreciation on inflation was largely offset by the MPC’s decision to revise down its forecast for wage growth in 2018 to 3.0 per cent, from 3.5 per cent.”