Labour shortage has seriously affected UK economic prospects

Investors now expect the BoE to "beat" all other major central banks, including the Fed, for the rest of 2022. Capital Economics said this expected reversal could have a downside impact on the pound. We think the BoE will raise rates by less than money markets are currently expecting, which in turn should keep GBP under pressure.

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For the Bank of England to meet market expectations, it will have to raise rates more than any other G10 central bank for the remainder of 2022. Money market prices are now showing investors expecting a 154 basis point rate hike by the end of the year after U.K. data this week. This means that the Bank of England's Monetary Policy Committee will meet three times in September, November and December, raising interest rates by 50 basis points, and the bank rate will be close to 4.0%.

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The UK economic outlook has "seriously deteriorated". The International Monetary Fund (IMF) predicts in its latest research report that the UK's economic growth will slow significantly in the second half of this year, and will become the weakest economy in the G7 next year. 3.2% and 0.5%. The Bank of England has warned that the outlook for the UK economy has "severely deteriorated" and that the UK banking industry needs to prepare for a severe recession.

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A number of economic sentiment and confidence indices in the UK have continued to decline recently. In June, the purchasing managers' indices for the manufacturing and service industries fell by 11.1% and 8.1% year-on-year, respectively. Data from market research firm Gfk showed that consumer confidence in June was negative 41, the lowest level in 48 years. A survey of British corporate treasurers by consulting firm Deloitte showed a 63 percent chance of a recession in the UK next year, with companies surveyed generally speeding up their reserves to prepare for more difficult conditions in the future.

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The government's subsidy and tax rebate package to deal with surging living costs for residents has fallen far short of rising prices. The article in the British "Weekly Report" believes that alleviating the increasingly serious labor shortage may be the "most urgent task" facing the British economy. Data show that compared with before the epidemic, the British labor market has decreased by nearly 900,000 people, and about 450,000 employed people over the age of 25 have withdrawn and it is difficult to return to the labor market. "Brexit" has also further weakened the attractiveness of the British market to the labor force of neighboring countries. Since 2019, nearly 200,000 EU citizens have lost their jobs in the UK. The Bank of England has previously warned that the imbalance between supply and demand in the labor market, coupled with high inflation, has pushed up labor costs and the risk of a price spiral.

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Despite the better UK sales figures, downside risks to the pound remain. Long positions in sterling that have been accumulated recently by leveraged funds could easily be liquidated, pushing the pound further lower against the dollar. UK retail sales rose 0.3% instead of the expected small decline, and retail sales excluding motor fuel rose 0.4%, but the data did not change the overall picture of weaker consumer spending. The record high temperature in the UK in July may be the driving force for sales growth. With skepticism that the retail sales data will change the outlook for the UK economy, GBP/USD is expected to break out and extend losses in the coming weeks.

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A UK gas user has been handed a 'ridiculous' energy bill as energy prices climb. British homeowner Richard White lives in a three-bedroom house with his partner, and his gas bill in June soared from £200 to £429.41 (about 3,500 yuan). This year, you may have to pay a fee of 5,000 pounds (about 40,000 yuan). He quickly contacted supplier British Gas to explain why the price increase was justified. "It's not a home base for Arctic expeditions, so it's absurd for BG to predict we'll be paying £5,000," he said. Richard said if the company couldn't fully resolve his complaint within eight weeks, he would The issue was escalated to the UK Gas Electricity Markets Office, the energy regulator.