Time for a recap:
Michael Saunders forecast that:
If the economy continues to recover, and inflation shows signs of being more persistent, then it might be right to think of interest rates going up in the next year or so.
Saunders also argued that the Bank should end its QE programme, before inflationary pressures become entrenched. He explained:
I also worry that continuing with asset purchases when CPI inflation is 4% and the output gap is closed – that’s the likely situation later this year – might well cause medium-term inflation expectations to drift higher.
Such an outcome could require a more substantial tightening of monetary policy later and might limit the committee’s scope to respond promptly the next time the economy needs more stimulus.
His warning comes as the supply chain crisis continues to push up raw materials costs, with businesses warning that they will be passed onto consumers this autumn.
Cleaning company McBride added its voice, saying that it has seen raw material costs surge — with cardboard up 50% and some solvents costing 300% more.
Businesses have criticised the government’s plan to increase National Insurance rates to fund social care and the NHS, warning it will hit growth and cost jobs. The pound dipped against the US dollar and euro.
The disruption to work patterns has also hit trading at TP ICAP Group, the world’s largest inter-dealer broker. It blamed cautious traders working from home, who weren’t able to take as many risks as when in the office.
On the economic front, China reported a surprise surge in exports last month. They rallied over 25%, as manufacturers overcame disruption caused by the surge in Delta variant, and problems at ports.
Analysts suggested that some overseas customers had placed Christmas orders early, in an attempt to avoid supply chain disruption.
Germany painted a mixed picture. Investor confidence fell, on concerns that the supply chain crisis in the car sector and the construction industry will hurt growth.
The ZEW economic research institute said its survey of investors’ economic sentiment fell to 26.5 from 40.4 points in August.
ZEW president Achim Wambach said in a statement:
“Market experts expect the economic situation to improve. Yet the scope and dynamics of the recovery have been significantly reduced,”
“Chip shortages in the automotive sector and scarcity of resources in construction have significantly impacted expectations in those sectors.”
But German factory production returned to growth, indicating that manufacturers are gettting to grips with supply chain bottlenecks.
UK house prices hit a record high, according to the Halifax, as the market keeps rising despite the easing of the stamp duty holiday.
The average cost of a property increased by 0.7%, or £1,789, in August to £262,954, topping the previous peak of £261,642 recorded in May.
Demand for more space amid greater home working, and a shortage of homes for sale, both kept prices high, along with low borrowing costs and consumer confidence rising to pre-pandemic levels.
Takeovers of UK companies by foreign firms have surged to the highest point since the end of 2018, with more major deals under negotiation, including the £7bn sale of Morrisons to a US private equity house.
Mergers and acquisitions conducted by foreign companies of UK firms were worth £27.7bn between April and June, up from £8.3bn in the first quarter, according to the latest figures from the Office for National Statistics (ONS). That was the highest level since the last three months of 2018, when US cable giant Comcast’s £30bn takeover of Sky pushed the quarter’s total to £33.3bn.
One takeover battle moved closer to completion. British aerospace manufacturer Meggitt is a step closer to a takeover by US company Parker-Hannifin after rival suitor TransDigm said it would not make an offer.
Ohio-based TransDigm said on Tuesday that it was pulling out of the race because it was unclear that it would be able to secure a high enough return on its investment.
Business secretary Kwasi Kwarteng has ordered a national security review of a takeover by a Chinese academic of a small Welsh manufacturer of graphene – the thinnest and lightest “supermaterial” known.
Eurozone growth has been revised up – to show the single currency region expanded by 2.2% in April-June, up from 2% previously.
This comes just as the US recovery seems to falter, with the Delta variant hitting job creation last month.
But there’s gloomy news for wine lovers. French wine makers are expected to produce nearly a third less wine this year than usual, after their vineyards were struck by frosts, poor weather and disease during the spring and summer.
The country’s wine output is predicted to tumble by 29% this year compared with 2020, to the lowest level in decades, according to France’s agriculture ministry.
And Britain’s competition watchdog has raised concerns over Sony Music Entertainment’s $430m (£312m) deal to buy AWAL, the artist services company that has released music by artists including Little Simz, Nick Cave and the Bad Seeds and Billie Eilish’s brother and collaborator Finneas.