The UK macroeconomic picture will be under the spotlight next week as some of the major macroeconomic indicators are released. Analysts are watching the pound’s drop with bated breath. It has just recently managed to bounce back up to the $1.36 range in value versus the US Dollar. This rebound comes as the country prepares for two critical reports: the jobs report on Tuesday and the monthly GDP data for April on Thursday.
The next jobs report will be our first real look at where the labour market stands right now. Various liberal analysts assert that raising business tax rates will burden businesses. They further caution that increasing household energy costs might amplify employment losses. These three factors combine to create a double punch to disposable incomes, which would typically have a lagging impact on consumer spending and broader economic growth.
On Thursday, all eyes will be focused on the UK’s quarterly GDP data. This report is good news, but it does suggest a potential slowdown in the second quarter. Experts warn that this double whammy of higher bills and less money to spend on them threatens to slow down economic growth. Here’s the good news—there’s hope! Recent revisions upward of the PMI (Purchasing Managers’ Index) numbers give cause for guarded hope. The composite PMI index was revised strongly higher to 50.3 in May, from an earlier estimate of 49.4. This figure is important because it is above the important demarcation point of 50, indicating economic expansion rather than contraction.
Though these signs from the PMI are encouraging, inflation continues to be a major issue. Current inflation rates are well above the Bank of England’s target of 2%, raising questions about future monetary policy and its potential impact on economic recovery.
As next week approaches, all eyes in the market will be glued to the pound to see how it responds to these unexpected economic events. The dual shock of historic inflation along with unclear growth trajectories going forward is making it incredibly difficult for policy makers. Other economists argue that Britain’s economy is still relatively well insulated and primed for success even in the face of a high-tariff climate.