“Bank of England Raises Interest Rates, the most since 1995…”

On Thursday, the Bank of England (BOE) raised interest rates by the most in 27 years to combat the rise in inflation which is set to reach 13%.  The BOE’s Monetary Policy Committee voted 8-1 for a half percentage increase in the bank rate to 1.75% from 1.25%.  This is the highest level since 2008.  Concurrently, the BOE warned that Britain was facing a recession with a fall in output of 2.1%, similar to a slump in the 1990s however it was far less than the impact of the COVID-19 and the 2008-2009 global financial crisis.  The UK economy could start to shrink in the final quarter of 2022 and contract during 2023, resulting in the longest recession since the global financial crisis.  Meanwhile, inflation in the UK hit a 40 year high of 9.4% in June, already more than four times the Bank of England’s 2% target.  With its new forecasts, the BOE saw inflation dropping back to 2% in two years’ time as the negative effect on the economy impacted demand.  Meanwhile, the BOE has so far raised interest rates six times since December.  The Bank has retaliated that it was ready to take more action to fight inflationary pressures.   

Eurozone Business Activity

Business activity in the eurozone dropped slightly in July for the first time since early last year as consumers control their spending amid higher cost of living expenses, showed a survey.  The S&P Global’s final composite Purchasing Managers’ Index (PMI) which is seen as a good gauge of the economic situation dropped to a 17-month low of 49.9 in July from 52 in June. Anything below 50 indicates a contraction.  Despite price increases have moderated, they are still steep.  Furthermore, new business index dropped from 50 to 47.6, which is the lowest since November 2020.  Meanwhile a PMI that covers the bloc’s dominant services industry dropped from 53 to 51.2.  The demand for services dropped as consumers stayed at home and firms were less optimistic.  The Business expectations index dropped from 58.5 to 56.8, its lowest since October 2020 amid the COVID-19 pandemic. 

Eurozone Factory Activity

A survey on Monday showed that manufacturing activity across the eurozone contracted last month leading to factories storing goods amid weak demand.  The S&P Global’s final manufacturing Purchasing Managers’ Index (PMI) dropped to 49.8 in July from 52.1 in June.  The index dropped below the 50 mark for the first-time separating growth from contraction since June 2020.  An index that measures output, which feeds in the composite PMI due on Wednesday and which is seen as a good gauge of economic health dropped to more than two-year low of 46.3 while in June it stood at 49.3. Meanwhile, the new orders index dropped to 42.6 from 45.2, its lowest since May 2020 when the COVID-19 pandemic kicked in.  S&P global said that production was dropping in all the countries surveyed, other than the Netherlands and the rate of decline was of concern for countries such as Germany, France and Italy.    

US Manufacturing Sector

US manufacturing activity slowed less than expected in July and there were signs that supply constraints are easing.  The Institute for Supply Management of supplier deliveries dropped to 55.2 from 57.3 in June.  A reading above 50 indicates slower deliveries to factories.  Furthermore, a gauge of prices paid for inputs by factories dropped to a two-year low suggesting inflation is probably peaking.  The institute for Supply Management (ISM) said on Monday that its index of national factory activity dropped to 52.8 in July the lowest reading since June 2020 which was at 53.  A reading above 50 indicates expansion in manufacturing that accounts for 11.9% of the US economy.   

US Weekly Jobless Claims

The number of Americans filing new claims for unemployment benefits increased last week, indicating a softer labour market despite overall conditions remaining tight.  Initial claims for state unemployment benefits increased by 6,000 to a seasonally adjusted 260,000 for the week ended 30 July, said the Labour Department on Thursday.  Claims exceeded the 230,000 at the beginning of June, hitting an eight-month high of 261,000 in mid-July.  However, figures remain below the 270,000 -300,000 range which according to economists indicate a significant slowdown in the labour market.  Meanwhile, job openings at the end of June amounted to 10.7 million.  Meanwhile, layoffs for now remain low in areas such as those in the automotive, technology and financial sectors.  So far this year, employers announced 159,021 layoffs down 31.3% from the same period of last year. 

Services Sector in the UK

British services sector activity in July grew at the slowest pace since early 2021.  The S&P Global/CIPS UK Services Purchasing Managers’ Index (PMI) dropped to 52.6 from 54.3 representing a 17-month low.  Meanwhile, while costs are still rising by historical standards, they rose by the least since December, and the price increase charged by firms was the smallest in five months.  From their end firms continued to hire strongly irrespective of the difficulty to find suitable employees and the concerns arising from high inflation and rising interest rates.  Furthermore, new business improved only slightly from a 16-month low in June.         

Oil

Oil prices dropped on Monday amid weak manufacturing data for July from China and Japan on demand outlook.  Brent crude futures were down 0.8% at $103.15 a barrel while US West Texas Intermediate crude was at $97.44 a barrel down 1.2%.  New COVID-19 lockdowns impacted the short recovery in June of factory activity in China.  Brent and WTI closed July with their second straight monthly loss for the first time since 2020 amid soaring inflation and high interest rates that could negatively impact the demand for fuel.  Meanwhile according to the European Central Bank on Monday, a permanent increase in oil prices will reduce the eurozone’s potential output by less than 1% over four years.  According to their forecasting model, the ECB found that an increase of 1% in oil prices would reduce the euro area’s growth by around -0.02% in the medium term. Meanwhile, oil prices have been resilient to global economic recession and have outperformed major equity indices and the US Dollar so far this year on the back of Western sanctions on Russia.  Meanwhile, OPEC+ is set to increase its oil output goal by 100,000 barrels per day.  Such an increase which is equivalent to 0.1% of global demand, follows weeks of speculation following Biden’s trip to the Middle East and Washington’s clearance of missile defence systems sales to Riyadh and the United Arab Emirates will increase the oil market.  OPEC data shows that the increase of 100,000 bpd will be one of the smallest since OPEC quotas were introduced in 1982.  OPEC and its allies, led by Russia, a group known as OPEC+ formed in 2017, has been increasing production by about 430,000-650,000 bpd a month as they unwind the oil supply cuts introduced during the COVID-19 lockdowns. 

Gold

Gold prices on Monday dropped sharply on weak manufacturing data from China and Europe that weighed on demand ‘s outlook.  Brent crude futures dropped 3.6% at $100.2 a barrel after dropping to a session low of $99.75.  Concurrently, July saw factories across Asia and Europe struggling amid lower global demand and the COVID-19 restrictions that slowed production, showed a survey on Monday. On Tuesday gold prices rose as US Treasury yields retreated and the growing risks of a recession offset the impact of a slightly firmer dollar.  Spot gold was up 0.4% to trade at $1,778.81 per ounce after hitting its highest since 5 July at $1,780.39 earlier in the session. Wednesday saw gold prices rising as the dollar pulled back and the Sino-US tensions helped to combat the pressure from an increase in the US Treasury yields after the hawkish comments over interest rate rises by Federal Reserve Officials.  Spot gold increased by 0.5% at $1,767.89 whilst on Tuesday gold rose to a one month high of $1,787.79 before dropping 0.6% on the day.  Meanwhile, the dollar fell 0.1% making gold less expensive for other currency holders.

Malta:  Registered Unemployment for June 2022

A press release by the NSO on 1^st August shows that data provided by Jobsplus for June 2022 indicate that the number of persons registering for work stood at 954 declining by 757 in comparison to the same month in 2021.  Registered unemployment levels decreased across all age groups for both males and females.  The largest number of males and females on the unemployment register sought occupations as clerical support workers with 22% and 38.3% respectively.

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