Here are this week’s highlights in the UK economy.
UK unemployment eases: The number of jobless citizens has fallen to only 3.6%, its lowest since 1974. The plunge is attributed to more workers dropping out of the workforce. On the other hand, job vacancies fell to 34,000.
UK GDP rises more slowly: The economy grew by 0.2% in July, according to the Office for National Statistics (ONS). The massive heat wave that brought the hottest month in 138 years has raised sales in ice cream shops, amusement park tickets and coolers. However, it negatively affected producers because of energy concerns. The services sector was lifted, on the other hand, by the country’s hosting of Women’s Euro 2022 and the Commonwealth Games in Birmingham.
Inflation falls to 9.9%: Inflation eased in August to an annual rate of 9.9%, dropping from 10.1% the previous month. The slight drop is attributed by the ONS to the fall in petrol prices, but this was offset by the cost of food and non-alcoholic beverages.
House price growth at 19-year high: The ONS reports that the average price of a UK house has risen by £6,000 between June and July, averaging £292,000 in July. This is higher by £39,000 year over year. The highest increase was recorded in Wales at 17.6%, followed by England at 16.4%.
World Bank warns of a global recession: A report released by World Bank this week reveals a looming global recession as central banks will simultaneously hike interest rates in the coming months. The study recommends central banks in larger economies to consider cross-border spillover effects of monetary tightening as well as boosting productivity and global supply of commodities.
The UK’s very modest rise in GDP in July will be further tamed as businesses will temporarily shut down on the day of the Queen’s funeral and will await the impending interest rate hike by the Bank of England next week. This will impact lower income households that have to tighten their purse strings come winter as real wages cannot still keep up with inflation.
While the rate of inflation fell to 9.9%, this is still closer to the double digit hike it registered last month, its highest in four decades. The construction sector, in particular, continues to feel the pain of soaring inflation as production dropped 0.8%, following a 1.4% decline in June. Developers are making ends meet by keeping afloat despite the squeeze brought by the high cost of construction materials.
And with the robust increases in job vacancies in the past months now already slowing down, we’re expecting developers to feel the pinch of the Brexit-induced drop in immigrant labour and the increased cost of hiring. Operating on slimmer margins this time around means navigating riskier financial challenges as fuel prices continue to affect their operational expenses (transportation of materials to project sites, heavy equipment usage, etc.).
Although dwelling starts have started to recover, according to the ONS, this crisis will further exacerbate the undersupply in housing as the economy will likely enter a technical recession. Developers are likely to think twice before committing to build or they risk bankruptcy.
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