Weekly Economic Review: US Inflation Declines and UK Leads G7 Growth

Published: August 16, 2024 | Updated: September 10, 2024
By Rebecca Geldard, Senior Writer for Forum Stories

In this week’s economic roundup, we highlight key developments affecting the global financial landscape. Significant findings indicate that US inflation has dropped to its lowest level in 3.5 years, while the UK is experiencing rapid economic growth, outperforming its G7 peers in the first half of 2024. Additionally, mixed economic signals emerge from China and other regions, shaping expectations for monetary policy adjustments.

1. US Inflation Slows to Below 3%

Recent data from the U.S. Labor Department shows a notable slowdown in consumer price inflation, now at 2.9% annually as of July. This figure marks a significant decrease, and economists believe it may prompt the Federal Reserve to consider cutting interest rates as early as next month.

This drop in inflation reflects three consecutive months of stable consumer prices, along with a modest 0.2% rise in the consumer price index for July, attributed largely to a 0.4% increase in shelter costs. Scott Anderson, chief economist at BMO Capital Markets, noted that this trend signifies progress toward the Federal Reserve’s inflation goals but cautioned that while a rate cut is likely, the prospect of a larger decrease remains uncertain.

Higher rents and persistent inflation above the Fed’s 2% target suggest that any potential rate cuts will be considered carefully.

2. UK is Fastest-Growing G7 Economy in First Half of 2024

The UK economy is on track to become the fastest-growing among G7 nations for the first half of 2024, reporting a 0.6% increase in GDP from April to June and an overall 1.3% growth this year. The resurgence follows a recession at the end of 2023, with the services sector, especially in scientific research, IT, and legal services, playing a pivotal role in this recovery.

This encouraging data comes as the UK government, led by Prime Minister Sir Keir Starmer and Chancellor Rachel Reeves, seeks to enhance economic growth while navigating tough fiscal challenges, including potential tax increases. Experts, however, express caution regarding the sustainability of this growth, suggesting the Bank of England may delay further rate cuts due to earlier signs of economic stagnation.

3. Global Economic Updates: Mixed Signals from Around the World

The global economic scene presents a mix of challenges and opportunities. In China, factory output has slowed for the third month in a row, growing 5.1% year-on-year, which is below forecast expectations. Although retail sales in China saw an improvement to 2.7% in July, these mixed results prompt concerns among policymakers about the speed of the country’s economic recovery.

In the United States, interest payments by the Federal Reserve have surged, totaling over $100 billion in the past year, outpacing total federal spending on major agencies like NASA and FEMA.

A Reuters poll indicates that over 80% of economists anticipate the European Central Bank will implement two additional 25 basis point rate cuts in the coming months, bringing the deposit rate to 3.25%.

In the Southern Hemisphere, New Zealand recently cut its benchmark interest rate for the first time in four years, reducing it by 25 basis points to 5.25% as inflation moves toward its 1-3% target range. Similarly, the Philippines has also lowered its target rate by 25 basis points to 6.25%, citing the need to foster economic growth.

Further north, Ghana noted a decrease in consumer inflation for the fourth consecutive month, down to 20.9% in July. Conversely, Norway’s central bank held its key deposit rate steady at 4.5%, maintaining a cautious stance amid currency depreciation concerns.

Conclusion

As we observe ongoing shifts in global economic dynamics, these developments in inflation, GDP growth, and monetary policies underscore the interconnectedness of financial systems. The careful balancing acts by central banks and the challenges faced by various economies illustrate the complexities that policymakers must navigate in pursuit of sustainable growth.

For further insights into the evolving landscape of finance and economics, follow our ongoing coverage at the World Economic Forum.

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