What's going on?
It’s not you, UK, it’s… okay, it is you: data out on Friday showed the country’s economy grew by a worse-than-expected 2.1% in August.
What does this mean?
Economists were, on average, predicting the UK would grow 4.6% in August compared to July. If only: its manufacturing industry – which contributes 17% of the economy – grew by just under 1% versus an expected 3%, construction – contributing 7% – grew 3% rather than 5%, and services – contributing over 70% – grew 2.4% compared to the forecasted 5%.
The latter will be tough to swallow: the UK government just spent $675 million enticing diners back into restaurants – which, as a key part of the hospitality and leisure industry, is a key part of the services industry – but it doesn’t look like it’s helped growth much at all.
Why should I care?
For markets: From worse to worser.
Economic growth data isn’t especially useful to investors given how outdated the statistics are when they’re released, but a slowdown in growth since June’s initial bounceback might worry those with UK assets. And considering things in the UK have only gotten worse – see spiking coronavirus cases and the ever-present Brexit threat – its companies’ earnings may soon follow. That might leave investors lured in by a seemingly attractive British stock market valuation with stocks they can’t profit from, or hoping for a recovery that never comes.
The bigger picture: So much negativity.
Some economists now expect the Bank of England to step up its economic support before the year’s out. One way it can do that is by cutting the country’s key interest rate below 0%, which would theoretically discourage saving and encourage borrowing and spending. As for whether Brits would then have to pay rather than receive interest on their savings, that’s unlikely. Switzerland, for example, has negative rates, and only the ultra-rich have had to pay a penny.