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Has ‘Barbenheimer’ helped keep the UK economy growing?

Two very different films, one ray of hope for summer spending  (ES Composite)
Two very different films, one ray of hope for summer spending (ES Composite)

As the late-summer sunshine keeps the heat on London, a run of closely watched numbers this week will shed light on whether wages and the economy are cooling down after 14 consecutive interest rate rises.

And an unlikely pair of early summer blockbusters just might have kept the UK growing as wet weather might otherwise have kept people at home in July, according to City experts.

First up on Tuesday are average earnings, which will be seized on at the Bank of England after its long and hard-fought fight against inflation.

Governor Andrew Bailey has warned of the dangers of high prices getting, in effect, baked into the economy by rising wages. He will be keeping close watch for signs of that, with the rate of wage growth for July forecast to stay steady, but at unprecedented levels.

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Average earnings for July are expected to be up at a record 7.8%, in line with the previous month’s reading. With bonuses, pay growth for the months will stick above 8%, with City experts braced for 8.2%, also in line with last month.

Bailey and the rest of Threadneedle Street’s Monetary Policy Committee would probably rather see both measures heading lower. But a steady showing, alongside wider signs that inflation has peaked, as measured by the consumer price index (CPI),  may give them some reassurance that interest rates at 5% could be near their peak, as well as at a 13-year high.

Michael Hewson, at CMC Markets, said: “With CPI starting to slow the Bank of England is having to contend with navigating an outlook where wages growth is likely to remain sticky for some months, at the same time as inflation that is starting to slow.

“They also need to be mindful of the fact that the 14 rate rises already implemented have yet to make themselves fully felt and could take quite a few more months before their effects are fully realised.”

Jobs numbers for August, also due on Tuesday, are expected to show a drop in the number of people out of work and claiming benefits to 17,100; down from 29,000 in July, with the unemployment rate at 4.3%. That could ease fears about the impact of higher interest rates on the jobs market.

Maitreyi Das, economist at HSBC said: “While June’s data showed some signs of an easing labour market, it remains to be seen whether the loosening trend continues or not.”

And then, on Wednesday, there is insight into the impact of any chill rate hikes may have sent through the wider economy.

The value of all the goods and services produced by the UK in July is expected to have shrunk by 0.2% in July from the June, having risen month-on-month last time around by 0.5%. That small decline is likely to be seen as the kind of cost the BoE would be willing to pay for its anti-inflation medicine to be working.

And City experts point out that while the start of the school holidays was wet, there were other ways to keep the tills ringing.

CMC’s Michael Hewson said: “It’s not as if consumers didn’t have other things to do,” adding:

“A full slate of film releases will have helped with the release of Indiana Jones and the Dial of Destiny, Barbie, Oppenheimer and Mission Impossible: Dead Reckoning Part One, with the start of the school holidays likely to have prompted an uptick in leisure activities.”

Year-on-year, the economy is expected to show growth, of 0.4%. And the annual trend for quarterly to also set to be positive, at 0.3%, keeping the country away from the definition of a recession, which is two consecutive quarters of economic contraction.

Attention will also focus on the services sector, the dominant part of the UK economy, with the index tracking it expected to rise by 0.2%, more than the 0.1% last time.

The Bank of England’s next decision on UK interest rates is due on 21 September at noon.