13 September 2022
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UK economy shows signs of slowdown

By Daniel Richards

  • The UK’s economy expanded by just 0.2% month/month in July, slower than market expectations and likely flattered by the absence of bank holidays in the month compared with June. Services recorded a 0.4% expansion, better than the 0.5% drop recorded a month earlier. UK industrial production came in far short of expectations in July, falling by 0.3% month/month compared with estimates of 0.3% gain. The drop was the second in a row after a 0.9% decline in June and this month was led lower by weaker utility output—with electricity supply down by 3.4% m/m. Manufacturing managed to reverse the June drop of 1.6% to record negligible growth of just 0.1%. The data affirms expectations of a slowing UK economy as high costs—for energy in particular and goods and services in general—take their toll on economic activity.
  • Turkey’s current-account deficit widened to USD 4bn in July, more than markets had been expecting and substantially higher than the modest deficit of just USD 300m recorded in July last year. The trade balance remains considerably in deficit at USD 9.3bn while the services balance recorded a surplus of USD 5.8bn. Energy costs remain a considerable drag on Turkey’s balance of payments as when energy costs were stripped out from the headline figure, the country record a current-account surplus of USD 3.7bn.
  • Inflation in India accelerated in August, rising by 7% y/y compared with 6.7% a month earlier and faster than market expectations of a 6.9% increase. Food prices were up by 7.6% y/y while energy costs added almost 11% y/y as a drop in the cost of oil in August was offset by a relatively weak INR. Industrial production slowed in August, to 2.4% y/y down from more than 12% a month earlier. A fall in mining activity helped to drag the index down as manufacturing generally was higher, up by more than 3% y/y.

Today’s Economic Data and Events

  • 10:00 UK unemployment rate 3mths to July: forecast 3.8%
  • 11:00 TU industrial production y/y July: forecast 8.2%
  • 13:00 ZEW survey Sept: forecast -60
  • 16:30 US CPI y/y August: forecast 8.0%

Fixed Income

  • It was a choppy start to the week for US Treasuries as early gains faded in the US session. Markets are likely prepping for a better but still high US inflation print to be released later today that will serve as the final indicator for the Fed to decide on how much to hike rates later this month. The 2yr UST closed up more than 1bps at 3.5714% though that failed to capture the around 8bps move during the day. Moves were even larger in the 10yr space with yields hitting a low of 3.26% mid-day before moving up to 3.37% by the end of trading, settling at 3.3578%, up 5bps.
  • European bonds were broadly stronger, bolstered by plans to tackle the eurozone’s energy crisis perhaps with greater clarity coming out from the European Commission this week. Yields on 10yr bunds fell 4bps to 1.647% while similar French bond yields closed at 2.219%, down 4bps. The gains came despite more aggressive commentary out of ECB officials, pledging more hikes ahead.


  • Currency markets swung away from the dollar overnight as a hawkish tone helped to give EURUSD a boost, even if some of the initial excess moves were unwound over the day. EURUSD added 0.8% to close at 1.1022 with further moves higher today. GBPUSD also received a bump, up 0.8% to 1.1683 even July GDP data showed only a modest recovery in activity. USDJPY meanwhile extended its rally to the detriment of the Japanese Yen, adding 0.26% to 142.84.
  • Commodity currencies were stronger as a rule with USDCAD down 0.3%, its fourth day of declines in a row, settling at 1.2988. AUDUSD added almost 0.7% to 0.6888 while NZDUSD gained 0.46% to 0.6137.


  • The rally in equities extended on Monday, and looks to be continuing in Asian markets in early trading this morning as the majors there are all in the green again so far, with the Nikkei up 0.1% and the Shanghai Composite 0.2% at the time of writing.
  • Yesterday in the US, the NASDAQ led the gains as it added 1.3%, while the Dow Jones gained 0.7% and the S&P 500 1.1%. In Europe, the FTSE 100 added 1.7%, the CAC 2.0% and the DAX 2.4%.
  • Locally, the Tadawul (0.7%) the DFM (1.2%) and the ADX (1.4%) all closed higher also. Dubai is looking to secure USD 817mn from the upcoming IPO of road toll company Salik when it sells a 20% stake.


  • Brent futures rallied for a third day running to start the week with a gain of 1.25% to USD 94/b at the close while WTI added 1.1% to close at USD 87.78/b. Anxiety over China’s consistent use of Covid-Zero measures will remain a headwind for oil prices as will a strong dollar.
  • The US secretary of state, Anthony Blinken, said a new JCPOA deal was “unlikely” as Iran’s proposals to the EU counterparts to the nuclear accord were “clearly a step backward.” Optimism that a deal can be reached has faded in the last few weeks, pushing against expectations that Iranian crude could help to offset disruptions to Russian exports.

Click here for charts and tables


Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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