8 August 2024: The economy grew by 4.8% post-pandemic

The Office for National Statistics has upwardly revised its figures for growth immediately following the Pandemic.

Greater weight was given to the oil and gas and public health sector which saw significant growth in 2022. The economy is believed to have grown at a rate of 4.8% in 2022, up from the 4.3% previously reported.

Revisions to 2023 and 2024 will be published next month as more data becomes available.

The Chancellor of the Exchequer, Rachel Reeves, currently visiting North America addressed reporters in Toronto. She told them that she is considering adopting a “Canadian style” model which uses the combined pension funds that local government employees have accrued to fund major infrastructure projects.

These funds are currently around three hundred and sixty billion pounds attributed to righty six funds belonging to six million employees.

Investing these funds in “productive assets” would in Reeves’s view would “turbo charge” the UK economy.

Reeves’ team at the Treasury has already begun the review of the entire pensions sector and her initial thoughts have been welcomed by pension giants, Legal and General and Aviva.

It is expected that she will put” meat on the bones” of her plans when she makes her first Mansion House Speech, the data of which will be announced in the coming weeks.

The National Institute for Economic and Social Research (NIESR) has claimed that a renegotiation of Boris Johnson’s Brexit deal could have a seriously positive impact on the country’s economy.

Brexit uncertainty and the long-lasting effects of the extended lockdowns and the aftermath of the Pandemic have, in the NIESR’s opinion caused the UK to lag its G7 partners in terms of productivity and output.

The Prime Minister, when he was in opposition, always believed that the deal was flawed, and has charged his European Affairs Minister with laying down the groundwork for its negotiation.

The markets have settled down somewhat from that furore caused by a potential slowdown in the U.S. economy driven by lower-than-expected job creation in July.

Sterling rallied briefly to a high of 1.2736 versus the dollar but drifted back to close almost unchanged at 1.2690.

A prominent Democrat Member of the U.S. Congress has accused the Federal Reserve Chairman, Jerome Powell of playing Russian Roulette with the economy.

Ritchie the Representative for New York has written to Powell to call upon the Federal Reserve to immediately cut interest rates. Even though the Fed has a statutory dual mandate of price stability and maximum employment, it has swung the pendulum too far in the direction of the former to the detriment of the latter.

Powell has never been popular with Democrat members of Congress given his membership in the Republican Party and his nomination for the role as Chairman by Donald Trump.

Torres, a member of the House Financial Services Committee, cited the recent July employment report which showed a significant slowdown from June’s growth. The 114,000 jobs added in July were below expectations, while the unemployment rate ticked up slightly from 4.1% to 4.3%.

It is interesting to note that the Fed’s efforts to drive down inflation have gone almost unnoticed by legislators, while a fall in job creation creates the furore that has been seen over the past week. This is a political tactic given the effect that lower job creation has on voters.

He accused the FOMC of delaying a cut in rates unnecessarily since inflation is close to the 2% target and playing Russian Roulette over recessionary fears.

Weekly jobless claims are expected to have fallen slightly to 240k after last week’s rise to 249k, almost reaching the psychologically important level of 250k.

This should add to the feeling of calm that is growing in the market.

Next week, the calls for a rate cut will be in focus again with the publication of the inflation data for July.

It is predicted that price increases will have moderated again to around 2.8% with core inflation possibly touching 3%.

Calls for a cut in the Fed Funds Rate at September’s meeting of the FOMC will become more strident although an emergency intra-meeting cut is no longer deemed necessary.

The dollar index appears to have made a bottom on short- and medium-term charts. Yesterday it rallied to a high of 103.37 and closed at 103.13.

Former ECB President Jean Claude Trichet joined the growing number of Central Bankers who have criticized the financial markets for the tumultuous price action of the past week, which he called an overreaction to the perfectly natural slowdown in U.S. job creation which the Federal Reserve has been striving for since almost the start of the year.

He argued there is no need to “panic” about the U.S. economy, and the current data does not support an emergency Federal Reserve rate cut.

The recent rapid strengthening of the yen can be seen as an overdue and healthy correction — and it’s not time to panic about the wider market impact.

The market saw something of a perfect storm with the tightening of Japanese monetary policy, and the tensions in the Middle East combined with lower-than-expected job creation which led to a correction in asset markets which is understandable given their current high valuations.

The change in Japanese monetary policy marked the end of the carry trade in which investors borrow a low-interest-rate currency, like the JPY, and invest in a higher-yielding currency to profit from the rate differential.

It is a “self-fulfilling prophecy” if rates are unchanged. Once the BoJ raised interest rates a massive unwinding took place although the underlying U.S., economy appears to be heading for the soft landing that has been promised for a considerable time.

The German economy appears to be showing signs of finally bottoming out.

Industrial orders rose in June for the first time in six months.

Industrial production rose to -4.9% after a fall of -6.7% in May year-on-year. Month-on-month the figures are improving and saw a 3.9% improvement in June over May.

The automobile sector is the main driver of improvement in overall industrial production, while businesses manufacturing trains and planes also saw some growth.

Since the Eurozone’s largest economy appears to want to remain mired in the production of energy-intensive products, it remains at the mercy of the cost of oil and gas which is expected to increase as summer ends and Autumn begins.

The Euro lost ground yesterday, falling to a low of 1.0905 and closing at 1.0922.

German inflation data is due for publication tomorrow. It is expected that price increases will have moderated again, falling to 2.5% in July following a rise of 2.6% in June.

Have a great day!