Macro

UK: The Bank of England raised its key interest rate to 5.25%, the highest in 15 years, with indications that rates will remain elevated for an extended period to target the 2% inflation. The central bank projected inflation to fall to 4.9% by year-end, faster than its previous forecast, while economic growth estimates for this and the following year remained at 0.5%. However, the UK housing market continued to struggle due to the highest mortgage rates since 2008, with house prices declining 3.8% YoY in July, the sharpest drop since July 2009, and BoE mortgage data showing the first quarterly decline in net mortgage lending since 1987.

EU: Annual inflation in the euro area decreased to 5.3% in July from 5.5% in June but remained above the European Central Bank’s 2% target. Inflation also declined in Germany and France, the two largest economies in the bloc. Despite this, the eurozone’s economy expanded by 0.3% sequentially in Q2, following two quarters of contraction or stagnation, with Germany’s GDP remaining unchanged and Italy’s economy contracting by 0.3%. Forward-looking purchasing managers’ surveys suggested a weaker start to Q3, as the composite index of business activity in services and manufacturing was revised slightly lower to 48.6 in July, signalling contraction with readings below 50.

US: Fitch Ratings downgraded the credit rating of US government debt from AAA to AA+, citing governance and medium-term fiscal challenges. The Labor Department’s nonfarm payroll report for July showed employers adding 187,000 jobs, indicating a slowdown compared to the first five months of the year, when the economy added an average of 287,000 jobs per month. The unemployment rate declined to 3.5%, while wages grew 4.4% YoY, remaining unchanged from June. Additionally, the Institute for Supply Management manufacturing Purchasing Managers’ Index was 46.4 in July, below 50 for the ninth consecutive month, indicating contraction.