Fragile state of UK economy under scrutiny as nation mourns | Economic growth (GDP)

The fragile state of the British economy will be underlined this week by official data showing a renewed fall in consumer spending amid a sharp rise in the cost of living, ahead of a possible slowdown in activity during the national period of mourning following the death of Queen Elizabeth II. ‘.

City economists forecast inflation to rise further to 10.2% in August when official figures are released on Wednesday, as a rise in the price of a weekly shop and high energy bills add to financial pressure on struggling households. That would mark a modest rise from July’s reading of 10.1 percent, which was the first time the consumer price index rose above 10 percent since the early 1980s.

The figures come after the Bank of England delayed a decision to raise interest rates further from the current level of 1.75% this week in deference to the Queen. With businesses, financial institutions and unions canceling or postponing major events amid the national mourning period, the central bank’s rate-setting monetary policy committee will wait until Sept. 22 to act.

It was confirmed at the weekend that the Queen’s funeral on Monday 19 September will be a public holiday. While providing an opportunity for the public to pay their respects, the event could bring mixed blessings for businesses.

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

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

Simon French, chief economist at City broker Panmure Gordon, said the extraordinary bank holidays in 2002, 2012 and earlier this year reduced economic output by at least £2bn. “There are few parallels at the moment and that makes predictions particularly difficult,” he told the Sunday Times. “We may not just be talking about an extra bank holiday. There could be a prolonged period of national mourning.”

Government guidance published last week encourages companies to consider canceling or postponing events during the mourning period, especially on the day of the state funeral. However, there was no obligation to suspend operations, with the decision at each company’s discretion.

However, on Friday, some retailers temporarily closed their doors and many events, including conferences and sporting events due to take place this week, have been postponed. Overall, this suspension of normal business and cultural life could add to an already bleak economic picture.

Households have started to cut back on spending in response to rising prices for essential items, with the City bracing for data confirming a fall in retail sales in Britain in August when the Office for National Statistics releases its latest monthly figures later. this week. Economists polled by Reuters expected a 0.4% drop in the month, reflecting a slowdown in broader economic activity as Britain heads into a long recession.

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

Economists believe the measures could prevent inflation from rising much higher than current levels while helping to cushion the effects of the recession. But the Bank is expected to keep raising rates amid the risk of high inflation entrenching itself and as the pound comes under pressure in global financial markets amid speculation over the cost of the Truss’ tax and spending plans.

Data released on Monday is expected to show economic activity rebounded in July after falling in June when the platinum jubilee holiday weekend weighed on growth. After UK GDP fell by 0.1% in June, City economists forecast a monthly rise of 0.4% in July, while warning that this would be a temporary respite amid wider pressure on businesses and households.

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

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