almost 2 years ago • 3 mins
Data out on Friday showed UK retail sales unexpectedly jumped in April, then stumbled around a bit, then started a fistfight with a pigeon.
What does this mean?
After two consecutive months of declines, the number of goods sold in UK stores and online climbed 1.4% in April from the month before. That might not sound like much, but it blitzed the 0.2% drop economists were expecting at a time when inflation is at a 40-year high. Then again, the bulk of the gain was driven by an uptick in supermarket alcohol and tobacco sales. That not only suggests that the cost-of-living crisis is forcing Brits to entertain themselves at home, but that they’re plying themselves with liquor and cigarettes to sand the edges off this otherwise miserable existence. We know we are. Hic.
Why should I care?
Zooming in: Get used to this.
Economists haven’t been fooled by April’s retail rebound, arguing that things are only going to get worse – maybe even recession-worse – as Brits are forced to tighten their belts over the next few months. For one thing, the UK government has recently made the unsympathetic move of increasing both taxes and the limit on how much energy giants can charge customers. And for another, shoppers are forking out extra for just about everything: they spent 13% more than in a pandemic-free February 2020 last month, even though they only bought around 4% as many products.
The bigger picture: Recession warning.
Disposable incomes in Britain have now fallen almost as fast as they ever have done, which might be why data out last Friday showed UK consumer confidence fell to its lowest level in nearly 50 years this month. It’s now sitting below an ominous level that’s generally preceded a big dropoff in household spending, which itself has gone on to lead to a recession.
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China cut a key interest rate by a record amount in a bid to boost its struggling economy.
What does this mean?
China’s property slump and the government’s zero-Covid policy have left the country’s economy black and blue, with consumer spending and industrial output last month plunging to their lowest levels since the pandemic began. That’s left the country scratching its head as to how to mitigate the slowdown, and it seems to have hit upon a solution: it just announced a record cut to a key interest rate that underpins mortgage lending from 4.6% to 4.45%. The lower rate – which will be applied to new mortgages immediately and existing mortgages next year – is a significant move to boost demand for loans and prop up the country’s all-important property sector, which makes up around a quarter of the Chinese economy.
Why should I care?
The bigger picture: China has plenty in the tank.
China is under a lot of pressure to meet its own growth target of about 5.5% this year – a goal that’s looking increasingly unachievable as it keeps up its stubborn fight to eliminate Covid. But you can’t fault its chutzpah: Bloomberg estimates that the country will pump $5.3 trillion into its economy this year, in the form of government spending, interest rate cuts, and more. That figure equates to roughly a third of China’s economy, and it’s not even its upper limit: the country spent more on itself in 2020, suggesting it can raise the stakes even more if it needs to.
Zooming out: China and America could do a switcheroo.
China might believe its growth target is still achievable, but economists at Bloomberg certainly don’t: they’re convinced China’s economy will grow just 2% this year, compared to the US’s 2.8%. If they’re right about that, it’ll be the first time since 1976 that China’s economic growth undershoots America’s.
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