After days in which sterling hit fresh two-year highs, the pound climbed down off its peak yesterday against both the euro and US dollar, with further small falls this morning. However, it remains almost 2.5% stronger than this time last year against the euro.
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The cause of the slip yesterday was earnings ‘only’ rising by 5.7% year-on-year in the second quarter of the year, down from 6% in the first quarter and fractionally lower than expected. Unemployment remained stable at 4.4% – high, but at least not worsening.
This morning, we have heard that UK Retail Sales in June dropped by 1.2%. A fall was expected after they shot up 2.9% in May, but not this level, which has been blamed on election uncertainty and poor weather. It takes the year-on-year figure into the negative (-0.2%). On the other hand, the GfK Consumer Confidence indicator improved from -13 in July 2024 from -14 in June, the fourth consecutive rise.
On the question of whether interest rates will be reduced in August or September, the betting may now be switching back to the meeting on 1 August as the economy weakens.
Yesterday the European Central Bank (ECB) opted to keep interest rates on hold at 4.25%, having dropped them at the last meeting. However, ECB chief Christine Lagarde said that September’s decision is still “wide open” as they look for statistical evidence that inflation is on course to hit 2% from the current 2.5%. Wage growth is still at 5%, as Lagarde pointed out. She said that the ECB would not be giving guidance on future rate decisions.
The UK’s wage growth, according to the Office for National Statistics yesterday, was highest in the public sector (6.4%) and in the financial and business sectors (6.7%) and is now running far ahead of inflation, announced on Wednesday at 2%.
In politics, Donald Trump spoke to the Republican National Convention and accepted its nomination for him as president. He made the case for business protectionism, saying “We will not let countries come in, take our jobs and plunder our nation… The way they will sell their product in America is to build it in America, and only in America.”
While the Republican side hopes for a landslide in November’s election, after Trump’s 92-minute speech some on the Democrat side seem, if anything, more confident of beating him, if Joe Biden can be replaced as candidate.
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