The US Federal Reserve raised interest rates again this week. The hike means that the world’s largest economy is the first in the developed world to “normalise” its interest rates to such an extent that it has officially removed its “easy money” policy, introduced during the financial crisis. The move takes the Fed funds rate to between 2%-2.3% and was accompanied by a forecast that suggests a further three rate rises in 2019 and one in 2020, taking rates to around 3.4%.
Officials say the economy is performing strongly, and data shows that the economy grew at an annual rate of 4% in the second quarter, while unemployment remained at a near record low of 4%. Fed Chair Jerome Powell said that he was hearing a “chorus” of concerns about the trade tariffs but said the impact was small and that he “didn’t see it in the numbers”.
UK consumer confidence dropped in September amid Brexit fears, according to a survey released on Friday by GfK. It showed that sentiment fell to -9 in September from -7 in August. The outlook for household personal finances also weakened from +8 last month to +5 in September. If the widely respected survey continues to report falling sentiment about household finances it could herald a slowdown in consumer spending ahead of the Brexit deadline in March 2019.
Meanwhile, the UK manufacturing sector continues to suffer and orders have fallen to a four-month low, according to data released by the Confederation of British Industry (CBI) on Monday. It said manufacturing orders fell to -1 in the three months to September from +7 the month before.
Another survey released by BDO, the consultancy, showed UK export growth was the worst among the largest five EU economies in the last three months. It follows a PMI survey by IHS Markit earlier in September that showed manufacturing activity at a two-year low.
Sam Tombs at Pantheon Macroeconomics said that the stimulus to growth in production from sterling’s depreciation is fading.
"Admittedly, growth in total orders is weakening from a high rate," he said, with the overall balance still is consistent with year-over-year growth in manufacturing output of about 2%. But the official manufacturing data has been much weaker than the surveys this year, with output falling by 0.1% quarter-on-quarter in Q1 and by a further 0.9% in Q2.”
Labour promised to nationalise water companies at its annual conference on Tuesday and said the company bosses would have to reapply for their jobs at a maximum of 20 times the salary of the lowest paid workers. John McDonnell, shadow chancellor, said that he also wanted to put workers on the boards of big firms and give workers equity in their companies.
Main source of information: Company Report and Accounts, Bloomberg
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