UK’s fragile state of economy scrutinized as the nation mourns | Economic growth (GDP)

The fragile state of the UK economy will be highlighted this week by official data showing a renewed slump in consumer spending amid rising cost of living, before a possible slowdown in activity during the period of national mourning after death. of Queen Elizabeth II.

City economists predict a further increase in inflation to 10.2% in August when official data is released on Wednesday, as the rise in the price of a weekly store and skyrocketing energy bills add to financial pressure on households in difficulty. This would mark a modest increase from the July reading of 10.1%, which was the first time the consumer price index has surpassed 10% since the early 1980s.

The figures come after the Bank of England delayed a decision on a further hike in interest rates from the current 1.75% level this week as a sign of respect for the queen. With businesses, financial institutions and trade unions canceling or rejecting major events in the national mourning period, the central bank’s monetary policy committee for rate setting will wait until September 22 to take action.

Over the weekend it was confirmed that the Queen’s funeral, Monday 19 September, will be a public holiday. While offering the public an opportunity to pay homage, the event could bring mixed blessings for businesses.

Rail industry leaders said travel to and from London would be “extremely challenging”, urging mourners traveling to the capital to plan their journeys in advance.

Extra holidays can provide a boost to retail sales and hospitality spending. However, the additional holidays have also led to a drop in monthly output for the economy as a whole, with businesses and factories closing their doors early. Official data showed a decline in monthly gross domestic product (GDP) for the previous one-off holidays, including the queen’s gold and diamond jubilees in 2002 and 2012, respectively.

Simon French, chief economist at broker City Panmure Gordon, said one-off holidays in 2002, 2012 and earlier this year reduced economic output by at least £ 2 billion. “There are few parallels for this moment and that makes forecasts particularly difficult,” he told the Sunday Times. “We may not just be talking about one more holiday. There could be a long period of national mourning ”.

Government guidelines released last week encourage companies to consider canceling or postponing events during the mourning period, particularly on the day of the state funeral. However, there was no obligation to suspend the business, with a decision at the discretion of each company.

However, on Friday, some retailers temporarily closed their doors and many events, including conferences and sports matches to be held this week, have been postponed. Overall, this suspension of normal commercial and cultural life could weigh on an already gloomy economic picture.

Households have begun to curb spending in response to soaring prices for basic necessities, with the city braced for data confirming a decline in August retail sales in Britain when the Office for National Statistics releases its latest monthly data at the end of this week. Economists surveyed by Reuters expect a 0.4% decline over the month, reflecting the decline in overall economic activity as Britain moves into a long recession.

Last week the government established plans to freeze energy bills at an average of £ 2,500 per year for two years, as part of a support package for homes and businesses that marks one of the largest government interventions since the crisis. financial. In her first major act as prime minister, Liz Truss said that her energy price guarantee “would give people certainty about energy bills, curb inflation and stimulate growth.”

Economists believe the measures could prevent inflation from rising much larger than current levels, while helping to reduce the impact of the recession. However, the Bank is expected to continue to raise interest rates due to the risk of high inflation becoming entrenched and as the pound comes under pressure on global financial markets due to speculation about the cost of Truss’ tax and spending plans. .

Data released on Monday should show that economic activity picked up in July after the fall of June, when the long holiday weekend of the Platinum Jubilee weighed on growth. Following a 0.1% decline in UK GDP in June, City economists forecast a 0.4% monthly rise in July, warning that this will represent a temporary respite amid wider pressure on businesses and households. .

“July GDP should be disappointing,” said Klaus Baader, economist at French bank Société Générale. “Retail sales are likely to show renewed weakness. Inflation probably only increased in August, but recently all the surprises have been on the upside, so we should be prepared for another one. “

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