Central banks on both sides of the Atlantic will have key economic data to reflect on next week, with Britain on track to unveil the country's gross domestic product for the second quarter, fresh from the Bank of England's gloomy forecast for a recession to start later this year.
The UK will release GDP figures for the three months from April to June on Friday (12 August), when the US will also announce its GDP figures for June.
The US July consumer price index figure, which is the most commonly used measure of inflation, is also due to be revealed next week, a day before the country's June GDP figures are released.
On Thursday, the Bank of England predicted the UK economy is set for five consecutive quarters of recession as it implemented the largest interest-rate hike, of 0.5 percentage points (pp), in almost three decades to 1.75%.
BoE said in a statement: “UK-weighted global GDP growth was likely to have slowed in 2022 Q2, and was projected to remain weak in Q3.
“The latest rise in gas prices and, to a lesser extent, a tightening in financial conditions, had led to another significant deterioration in the outlook for global economic activity.”
Global bank ING reaffirmed the Monetary Policy Committee’s expectation that the country will experience an economic downturn this winter, forecasting a 1.1% drop in GDP in June.
Economists anticipate that the second quarter delivered positive GDP growth, but negative growth for the month of June.
“The Q2 GDP figure is expected to show a small decline from the previous quarter but still be up year-on-year,” broker BDSwiss said.
Meanwhile, in the US, the consensus is that the country registered the smallest monthly price increase since January 2021 this July, with ING expecting a 0.1pp rise in annual core inflation (excluding food and energy) to 6%.
As GDP figures are somewhat of a lagging indicator, US inflation data on Wednesday will be even more keenly watched, in light of the Federal Reserve’s eagerness to use interest rates as a swingeing tool to curb surging prices.
The US consumer prices index reached another 40 year high of 9.1% in June, sparking concern that the Fed might be tempted to go for a bigger than expected 100bps rate move in July.
Core CPI fell back from 6% to 5.9% and two of the most hawkish rate-setters pushed back against the idea of a big hike, with 0.75 percentage-point rise seen as sufficient.
“Since those numbers were released, the debate has moved on a touch with concerns over a recession now outweighing concerns over aggressive central bank tightening,” said market analyst Michael Hewson at CMC Markets.
“Bond market pricing since the June CPI numbers were released has seen prices rally strongly and yields fall back.”
With weakness in broader commodity prices as well as other data in recent months, he said this suggests headline inflation “could well have peaked in the short term”.
The market expects CPI to fall to 8.8%, with core prices expected to rise from 5.9% to 6.1%.