Yet the United Kingdom now finds itself in a particularly concerning tide of economic indicators. These signs have raised alarm bells about the financial direction in which our nation is heading. Over the last couple of weeks, a string of bad news has been released. In response, more and more people are criticizing the Bank of England’s (BoE) monetary policy approaches, growing frustrated with fears of stagflation. The central bank’s next meeting in August most likely won’t offer the certainty investors are looking for on whether interest rate bumps are behind us.
Elsewhere, recent figures reveal that the UK entered last month with its worst jobs crisis since the onset of the pandemic. This troubling trend only compounds the emerging economic worry. The labor market’s downturn, coupled with inflation rates that exceeded expectations, suggests that the country is facing a challenging economic landscape. Taken together, these moves make for an ever blackening picture of the UK’s economic prospects.
When viewed through the lens of retail performance, the outlook is grim. Retail sales figures fell 2.7% M/M in May, a decline that was much worse than analysts’ expectations. This drop represents some deeply concerning news on the overall consumer spending front, as bolstered consumer spending will be key to any economic rebound. As households are forced to bring down their debt loads, the effects on consumers’ business and net economic expansion are starting to look stark.
The upcoming Bank of England meeting in August is shaping up to be a pivotal one. A rate cut looks shaky to be set in stone ahead of this meeting. Swap markets are currently abuzz with expectation for another 25-point cut at the next Fed meeting. As it stands, forecasts call for only one more cut this year. Even that may be aspirational at this point. These kinds of expectations are an indicator of a market still reeling from the effects of long-term economic uncertainty.
A white paper on the recent wave of soft data from the UK shows serious issues bubbling beneath the surface. It not only deepens malaise among a rising tide of stagflationistas. Stagflation is a profound crisis for policymakers. They have to walk the tightrope of the toxic tandem of no-growth and high inflation.
The combination of greater than expected inflation and shrinking retail sales returns into question the confidence of the American consumer and their spending ability moving forward. With inflationary pressures still high, many businesses are unable to stay profitable and will lay off additional workers, creating a downward spiral of job loss and economic stagnation.