World leaders have urged President Trump and Chinese President Xi Jinping to resolve their trade dispute, at a meeting on the sidelines of the G-20 Leaders’ Summit in Japan on Saturday morning, or risk sending global growth on an accelerating downwards path. Early reports have indicated that President Trump has agreed to a “truce”, holding back on the implementation of tariffs on a further $300bn of Chinese goods.
Earlier in the week there was more talk about cutting interest rates to help sustain the current economic cycle, both in the US and in the UK. The US Federal Reserve chairman Jay Powell gave a speech on Tuesday warning how risks to global growth have increased and that “an ounce of prevention is worth more than a pound of cure”, in a hint that he is prepared to cut rates as a preliminary strike to offset an economic downturn. Markets are now pricing in a 0.25% cut in July.
In the UK, Mark Carney told the government’s Treasury Select Committee that market expectations for a no-deal Brexit had increased in recent weeks and that the uncertainties were weighing on the UK economy, specifically on business investment in the UK. He added that several policymakers – himself included – believed that the UK may need a stimulus package in the event of a no-deal Brexit but added that rates could go up or down depending on a variety of factors. Meanwhile, data emerging from the UK economy has been mixed. On Friday morning the Office for National Statistics (ONS) confirmed that the UK economy expanded by 0.5% in the first quarter, up from 0.2% growth in the last three months of 2018. This translates as 1.8% annualised growth during the 12 months to March 2019, up from 1.4% in the previous 12-month period. Increased manufacturing activity ahead of the original March 29 Brexit deadline and growth in the services sector were behind the solid performance. With temporary stockpiling activity boosting performance, economists believe such growth cannot be sustained, with forecasts of GDP growth of around 1.5% for the whole of 2019.
Retail sales data released earlier in the week hinted at a second-quarter slowdown. Sales fell at their fastest rate since March 2009 in the 12 months to June, according to the Confederation of British Industry’s (CBI’s) distributive trades survey. The balance of retailers reporting year-on-year growth in sales volumes came in at -42% , from -27% in May. This means that 16% of retailers said sales growth was up compared to 58% reporting that it was down. The number of residential mortgages approved by banks dipped last month, easing back from a 26-month high in April but staying above the monthly average. Banks approved 42,384 mortgages for house purchase mortgages in May, falling from roughly 42,900 in April but beating the consensus of 41,000. The number of mortgages for home purchases was also 9.1% higher than in the same month in 2018, marking the highest annual level since June 2016. However, a respected survey of consumer sentiment released on Friday showed a darkening mood among households. UK consumer confidence fell in June as consumers became pessimistic about their personal finances in the face of Brexit uncertainty. GfK’s headline confidence measure dropped to -13. All five components of the index, which cover personal finances, general economic optimism and major purchase intentions, fell compared to the previous month.
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