Stress Test

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What's going on?

Data out on Friday showed the UK economy grew just 0.1% in July, and that notoriously stiff upper lip looks like it’s starting to tremble.

What does this mean?

July’s growth was one-tenth of what it was the month before, but at least there’s a small caveat: June was the tail-end of a remarkably strong second quarter, which saw the economy grow 5% as Brits threw off their bowler hats and let down their hair. Trouble is, things are very different now to how they were even back then: the government has withdrawn various economic support measures, the disruption-ravaged supply chain is limping along, and consumer spending has dropped off a cliff. And all this before the country enters the deep, dark winter with the Delta variant snooping around…

Why should I care?

For markets: Investors want to be quids in.
You’d think the British pound would suddenly have found itself enemy number one on Friday morning, but investors actually pushed the currency higher relative to the US dollar. That might be because the Bank of England has indicated that it’s prepared to bump up interest rates as soon as May next year, which would make sterling much more appealing to anyone overseas. But Goldman Sachs isn’t so sure the central bank will actually follow through with that plan, saying it reckons any rate increase will be delayed till 2023. And if the economy keeps struggling to get out of first gear, the investment bank might just be right.

Zooming out: Real estate takes a break.
It was one thing after another for the UK: the country’s housing market dropped off in August, after the government rescinded the tax incentives it had put in place at the height of the pandemic (tweet this). But – and sorry to all you hopeful homeowners out there – it might just be taking a breather: experts are expecting low borrowing costs, lockdown-driven savings, and a shortage of properties to keep property prices high.

Originally posted as part of the Finimize daily email.

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