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Did the UK economy contract in the second quarter?

Did the UK economy shrink in the second quarter?

The UK economy is expected to contract marginally in the second quarter as it heads into a recession of a magnitude not seen since the 1990s later this year.

Economists polled by Reuters predict that production on Friday shrank 0.2 percent between the first and second quarters. Gross domestic product is expected to contract 1.3 percent between May and June as a result of the extra Jubilee holiday and partially negating May’s expansion.

This follows 0.8 percent growth in the first quarter, with the slowdown reflecting the impact of the blow to household finances from rising energy prices.

Last week, the Bank of England cut its economic forecast for the UK as it raised interest rates by the widest margin in nearly 30 years.

After some growth in the third quarter, the bank said the UK is expected to slide into recession from the fourth quarter of this year and continue to contract until the end of 2023. Thereafter, growth is expected to be “very weak by historical standards,” the bank said.

This is a significant downward revision from the May assessment, following the renewed rise in gas prices due to the ongoing war in Ukraine and cuts in gas supplies to Europe.

“The big picture, however, is that the economy is still on track to be smaller in 2025 than it was in 2019, before the pandemic,” said Thomas Pugh, an economist at consultancy RSM UK. “The much weaker economy is likely to drive more unemployment.” Valentina Romei

Is the US core CPI overlooked?

Main inflation includes the highly visible food and gasoline categories that prick consumers’ wallets when prices rise, but the US core consumer price index — which excludes these volatile categories — is expected to outpace the general number in July, and may rise in the coming months. continue to rise for months. come.

Economists polled by Reuters expect inflation in the US to rise 0.2 percent month-on-month from June to July, while core CPI is expected to rise 0.5 percent. The report will be released on Wednesday.

Derek Holt, head of capital markets economics at Scotiabank, sees the core CPI as the figure that more clearly shows how persistent inflation is in the US. He said the US may have already reached peak inflation in terms of food and fuel, but expects price growth for durable goods and some services to continue to pick up.

“We are still in the phase that will have a reopening effect on the more volatile high contact, service prices where people go out and travel more in the summer,” he said.

For example, real estate and car prices could continue to rise as food and fuel prices stabilize, especially after OPEC+ agreed to a slight production increase last week and Ukraine and Russia reached an agreement that would allow Ukraine to export its grain to a market with limited supply. .

But heightened tensions between China and Taiwan could disrupt the island’s dominant semiconductor industry and cause ripples through the global economy.

“A disruption to Taiwan would hit the core of many manufactured durables and bulky items and bring many supply chains to a halt,” Holt said, with the caveat that he doesn’t expect such an outburst. Years Kerr

Will Eurozone industrial production grind to a halt?

The eurozone is poised for a slowdown in economic activity as rising interest rates and rising food and fuel prices from Russia’s war in Ukraine push the region into recession.

Eurozone industrial production data for June is expected to be released on Friday and will show the impact of rising energy prices and prolonged supply chain disruption on industrial production. The May figure beat analysts’ expectations, with industrial production rising 0.8 percent month-on-month, but analysts now expect it to level off in June.

“Euro area activity is deteriorating broadly, across sectors and countries,” said Barclays analysts, who expect the bloc to slide into recession by the end of the year.

German production orders fell in June as the euro-zone’s largest economy struggled with supply chain problems and disruptions caused by the war in Ukraine. Analysts and economists generally expect the region to slide into recession as business and industrial activity slows and consumer spending slows under pressure from the cost of living and the energy price crisis. Nikou Asgaric

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