The impact of rising interest rates will be back under the City’s spotlight tomorrow, when the latest official numbers on the size of the economy are revealed.
All eyes will be looking for signs that the Bank of England’s long and hard-fought battle with inflation is affecting gross domestic product data, which tracks the value of all the goods and services the UK produces.
Friday’s reading – for the second quarter and the month of June – will also reflect the impact of the early summer heatwave, which helped retailers, and more strikes, that hit the transport sector and holidaymakers.
It is expected to show that the country remains on course to avoid a recession, defined as two consecutive quarters of shrinking GDP. But it is also set to show that the economy is flatlining.
The BOE lifted rates to 5% in June, in its thirteenth consecutive hike and a jumbo-sized move of 0.50%. It then upped them for the fourteenth time in August, by a quarter point, to 5.25%.
As the cost of mortgages and other loan repayments rise in line with the hikes, consumers have less to spend and businesses also have to pay more for finance, slowing the economy as well as inflation.
City experts expect annual economic growth of just 0.2% for the second quarter, after a month-on-month decline of 0.1%, the same monthly drop seen in May.
HSBC analysis said: “the UK continued to be affected by strikes and rising interest rates in June, and there wasn’t a big fall to bounce back from. This suggest that, at least for the preliminary reading, GDP could have been flat or even risen a little in the second quarter.”
Victoria Scholar at Interactive Investor, pointed out that GDP growth of 0.2% would leave it stuck at “ the weakest rate in two years as rising inflation and higher interest rates take their toll,” adding:
“According to June’s retail sales figures, the record-breaking heatwave supported sales in supermarkets and department stores, partly driven by high inflation which flattered food sales, lifted by higher prices rather than stronger volume.
“However, the boiling hot temperatures are likely to have dampened productivity, particularly in agriculture and construction. They also caused problems in the transport sector with passengers on trains and planes facing delays and cancellations.”
The data is out at 7 a.m. on Friday.
