Key UK labour market data and inflation figures due

Chris Scicluna

In the UK labour market report (tomorrow), we expect to see a significant slowing in employment growth to below 50k in the latest quarter, which would be the smallest since the three months to November. The unemployment rate in the three months to June is likely to edge up 0.1ppt on the quarter to 4.0%. But while vacancies are likely to have slowed, wage pressures are likely to have remained strong with private sector regular pay growth still above 7.5%3M/Y.

We also forecast headline CPI inflation (Wednesday) to drop 1.2ppts to a 17-month low of 6.8%Y/Y, with core inflation edging down just 0.1ppt, also to 6.8%Y/Y. Services inflation, which is being closely watched by the BoE, likely ticked up 0.1ppt to 7.3%Y/Y.

On Friday, retail sales are likely to have fallen between 0.5%-1.0%M/M in July while consumer confidence might have edged higher from the 3-month low in July thanks to the slightly better inflation data and fall in mortgage rates last month.

Euro area
Thanks to extraordinary growth in Ireland (+13.2%M/M), euro area IP (Wednesday) is now likely to post modest growth in June with the May figure also likely to be revised up slightly.

The initial estimate of GDP growth (0.3%Q/Q), which also benefited from the strong Irish expansion, will also likely be confirmed on Wednesday, while employment growth will remain positive for a ninth quarter, but slow from 0.6%Q/Q in Q1.

The final July euro area inflation data (Friday) are likely to align with the initial estimates, which showed that the headline inflation rate ease a further 0.2ppt in July to 5.3%Y/Y, the lowest since January 2022, but core inflation move sideways at 5.5%Y/Y.

We think GDP growth (tomorrow) moderated slightly from 0.7%Q/Q (2.7%Q/Q annualised) in Q1 to about 0.5%Q/Q (2.0%Q/Q annualised) in Q2. Growth is likely to have been driven net trade, not least thanks to a rebound in shipments of autos thanks not least to improved supply-chain conditions. But private consumption might well have taken a step back following growth of 0.5%Q/Q in Q1.

After the headline Tokyo CPI beat expectations in July, remaining unchanged at 3.2%Y/Y, the national CPI rate (Friday) is expected to remain elevated, although we look for a slight decrease of 0.1ppt to 3.2%Y/Y. The core measure excluding fresh food should fall a touch further to 3.1%Y/Y. Within the detail, the Tokyo report showed that lodging fees and mobile phone communication fees pushed up inflation but a cut in electricity/gas charges and steep drop in the mobile phone handset component represented a drag.

The goods trade report (Thursday) should confirm a further narrowing of the trade deficit in July to less than ¥500bn on lower prices of imported energy and other items.

Retail sales growth (tomorrow) is expected to pick up from 0.2%M/M (0.3%M/M ex autos and gas) in June, supported by firm wage and credit growth. Online sales were likely supported by Amazon Prime Day. Data on new vehicle sales point to a pickup in the autos component.

Industrial production should have risen in July (Wednesday, but possibly only due to increased utility output in response to higher demand for aircon in the face of extreme temperatures. The drop in factory employment and worktimes suggest that manufacturing output remained subdued after dropping in three of the four prior months. And mining activity looks to have been soft too.

Weighed by extreme weather and ongoing adjustments in the real estate sector among other things, industrial production will slow further from 4.4%Y/Y in June, with fixed asset urban investment expected to moderate further from 3.8%YTD/Y.

While the annual rate of retail sales growth is expected to firm from 3.1%Y/Y in June to about 4.0%Y/Y, the risks to that are skewed to the downside and it would still result in a moderation in the year-to-date rate from 8.2%YTD/Y reflecting the continued reticence of the Chinese consumer to open the purse strings.

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