This week both the UK and US released their CPI data for July, both with varying but positive results
USA
- July inflation fell to 2.9%
- This is the first drop below 3% since 2021
- June CPI was at 3% and expectations predicted it to stay at this rate
- Core CPI was at 3.2%
- Once again a 0.1% drop from the previous month
- Housing rose 0.4%, contributing to 90% of the monthly increase
- Expectations for the Fed to cut interest rates in September are now more certain than ever
- With declines in job growth and signs of lowered spending in the economy, some believe that the Fed may have waited too long
- Unemployment is at 4.3%, the lowest since Oct 2021
- Some believe that these factors may lead to the September rate cut being 0.5% as opposed to 0.25%
- It is unclear whether the Fed can achieve a ‘soft landing’; inflation falling to target without risking recession.
The NASDAQ and S&P500 closed higher following the news
UK
- Unlike the USA, CPI Inflation in the UK rose to 2.2%
- Earlier this year in May, CPI reached 2%, and this held the same in June
- Prices were expected to rise in July to 2.4%
- Despite this being the first rise since December
- Services inflation (the BoE’s key measure of domestic prices pressures) declined from 5.7% to 5.2%, a drastic change compared to the predicted 5.5%.
- On August 1st, the BoE cut interest rates for the first time since Covid-19.
- Due to the positive outlook on the Economy following the 2% target being hit, the BoE decided to cut rates to 5%
- This news has opened up the doors for a potential second and third cut later this year.
- Predictions say that a chance of a 0.25% rate cut next month is 40%, up from 36%
- The Governor of the BoE Andrew Bailey emphasised his actions to “be careful not to cut interest rates too quickly or by too much”
- The FTSE 100 rose 0.5% following the news