What's going on?
Data out on Friday showed that the UK economy grew at its fastest in seven months in January, as newly free Brits spent good money on some very overdue nights out.
What does this mean?
A spike in Omicron cases kept Brits inside over the festive period, causing the economy to shrink in December. But they sure made up for that in January: folk in the UK spent so much time and money out socializing that the services sector bounced back, bolstered by the retail and hospitality industries. All that merriment helped the economy grow 0.8% in January from December, its fastest growth since June last year and way above the 0.1% gain analysts expected. And get this: the economy even ended up 0.8% higher than before the pandemic struck in February 2020.
Why should I care?
For markets: Brits are downers.
It wasn’t all good news, mind you: a Bank of England (BoE) survey out on Friday showed UK consumers were more pessimistic about inflation last month than they have been since the financial crisis back in 2008. Maybe they’re right to be concerned: Goldman Sachs economists now predict inflation will peak at 9.5% later this year, and stay as high as 7% until early next year. And since it’s the BoE’s job to keep inflation in check, analysts reckon that could spur the central bank to raise interest rates for the third time later this week.
The bigger picture: Here today…
Russia’s war is causing more problems for flailing supply chains and sending prices soaring across the board. Mix that with rate hikes, and households will feel the squeeze on their finances. The UK’s comeback could be short-lived then: with less cash in Brits’ pockets, consumer spending – a key driver of the economy – could take a hit. Some economists even think the country’s economic growth could drastically slow as soon as next quarter, and end up around 1% lower this year as a result.