Daily Brief: UK Growth Slows To A Crawl, But Investors Still Fancy Sterling’s Chances

Daily Brief: UK Growth Slows To A Crawl, But Investors Still Fancy Sterling’s Chances

over 2 years ago3 mins

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Data out on Friday showed the UK economy grew just 0.1% in July, and that notoriously stiff upper lip looks like it’s starting to tremble.

What does this mean?

July’s growth was one-tenth of what it was the month before, but at least there’s a small caveat: June was the tail-end of a remarkably strong second quarter, which saw the economy grow 5% as Brits threw off their bowler hats and let down their hair. Trouble is, things are very different now to how they were even back then: the government has withdrawn various economic support measures, the disruption-ravaged supply chain is limping along, and consumer spending has dropped off a cliff. And all this before the country enters the deep, dark winter with the Delta variant snooping around…

UK economy

Why should I care?

For markets: Investors want to be quids in.

You’d think the British pound would suddenly have found itself enemy number one on Friday morning, but investors actually pushed the currency higher relative to the US dollar. That might be because the Bank of England has indicated that it’s prepared to bump up interest rates as soon as May next year, which would make sterling much more appealing to anyone overseas. But Goldman Sachs isn’t so sure the central bank will actually follow through with that plan, saying it reckons any rate increase will be delayed till 2023. And if the economy keeps struggling to get out of first gear, the investment bank might just be right.

Pound

Zooming out: Real estate takes a break.

It was one thing after another for the UK: the country’s housing market dropped off in August, after the government rescinded the tax incentives it had put in place at the height of the pandemic. But – and sorry to all you hopeful homeowners out there – it might just be taking a breather: experts are expecting low borrowing costs, lockdown-driven savings, and a shortage of properties to keep property prices high.

Keep reading for our next story...

US Airlines Warn On Profits After An Uptick In Covid Cases

Airlines image

Three of America’s biggest airlines warned last week that a rise in coronavirus cases will impact profits this winter, but you should subscribe to their podcast to hear what they really think.

What does this mean?

The Delta variant has been on the rise in the States, and it looks like it’s putting everyone off their hard-earned vacations: United Airlines, American Airlines, and Southwest Airlines have all cut their revenue forecasts for the rest of the year. The writing, it seems, is on the bathroom wall, with reservations on the decline and cancelations on the rise in August. That lower demand means airlines are planning to put fewer planes in the air during the festive season. That’s not to say no one’s traveling, mind you: it’s just that the airline’s most profitable customers – business and international travelers – are still MIA.

US air travel

Why should I care?

For markets: Deutsche Bank gets vertigo.

America’s airlines might be down in the dumps, but America’s stocks are plenty airborne for the both of them. They’re so high, in fact, that Deutsche Bank is the latest of the investment banks to warn that a selloff’s imminent. Stock valuations, after all, have risen non-stop for the past seven months to hit historic highs, even as the Delta variant runs riot and government support runs away.

SP 500

The bigger picture: Relatable problems.

Don’t you hate it when all your passengers cancel their flights just as the price of jet fuel collapses: China announced on Friday that it’d be selling oil from its reserves to the global market – a supply-boosting move that could lower raw material costs and, by extension, fuel costs for airlines. The decision stands to reason: it comes as one measure of inflation in the country surged to a 13-year high, putting pressure on manufacturers in the world’s biggest exporter.

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