We know it is going to be high, but the question is how high? Thursday’s inflation figures are likely to creep towards 10 per cent, due to cost pressures from soaring global commodity prices and supply chain bottlenecks. But as the supply-side strain continues, demand-side forces look more undecided.
On the one hand, the UK labour market remains remarkably resilient. June’s figures showed an unemployment rate of 3.8 per cent: this is 0.2 percentage points down on the previous three-month period and 0.1 percentage points below pre-pandemic levels. This tight labour market has the potential to impact inflation figures twofold. A scramble for workers increases the risk of wage inflation, while buoyant employment prospects should help to inspire higher levels of consumer confidence.
That is all very well in practice, but Thursday’s Distributive Trends report from the CBI will give an early indication of how consumers are really responding to soaring prices. May’s GfK Consumer Confidence Index recorded its lowest score since records began, and Friday’s figures may show a further deterioration. There could, however, be cause for optimism: the GfK German Consumer Confidence Index also hit a record low in April, before stabilising the following month.
And Friday’s ifo Business Climate Index figures are likely to show brightening sentiment in the German economy. Despite inflation concerns and the conflict in Ukraine, May’s results reported significant improvements in the manufacturing index and across the service sector. The report concluded that there were ‘currently no observable signs of a recession’ in the German economy.
No such luck for the UK. April saw the UK economy unexpectedly contract for the second month in a row, and the OECD now expects UK growth to stagnate in 2023. Thursday’s public sector finance update will shed some insight into how much room the government has to manoeuvre in terms of fiscal stimulus.
US existing homes sales data on Friday will see policymakers looking for any clues about the impact of rising interest rates on property markets. Housing market activity is expected to slow as the double whammy of soaring house prices and growing mortgage costs impact affordability. But any movements are likely to be a reversion to pre-pandemic norms, rather than an outright price decrease. And this should be news to brighten our weekends: falling nationwide house prices have only been seen during the Great Recession and the Great Depression.
