This week in the UK, surveys revealed interest rates on personal loans have dropped to the lowest levels on record in the latest evidence that the cost of borrowing is continuing to fall for consumers. There has been no change to the banks 0.5% interest rate since March 2009, the bank of England pointed to increased competition among lenders for the fall in borrowing rates and rise in consumer confidence. While some prices such as motor fuels, audio/visual and related equipment, and food are lower than they were a year ago, others such as restaurants, hotels and rents are higher. Taken as a whole, prices for services increased by 2.2% in the year to June 2015 while prices for goods decreased by 2.0% historically, price movements for food and motor fuels have been among the main causes of inflation.
The UK also enjoyed a big pay rise in spring, with average earnings 3.2% higher in the period from March to May 2015 than a year earlier, highlighting the increasing skills shortages forcing employers to offer higher wages. Although the growth in wages is strong, it did slightly miss economist’s forecasts of 3.3% growth, however this should be welcome news for Mark Carney after yesterday’s comments that interest rates will be looking to increase in the near future. However, the better earnings figures came as the unemployment rate rose for the first time in two years, sparking fears that Britain’s booming labour market has lost some of its momentum.
UK consumer price index inflation report fell to 0% for 0.1% in May, clothing and food prices were the main contribution to the change along with a smaller rise in air fares in June since the same time last year. Inflation is expected to remain low for the moment but bank experts say it should start to pick up by the end of the year. Core inflation which includes energy, food, alcohol and tobacco prices fell to 0.8% from 0.9% the lowest level seen since 2001.
Eurozone leaders have finally reached an agreement after marathon talks over a third bailout package for Greece, officials say. EU President Donald Tusk said the agreement was unanimous. He tweeted that a bailout programme was "all ready to go" for Greece, "with serious reforms and financial support". European Commission head Jean-Claude Juncker stated "There will not be a Grexit" referring to the fear that Greece would have to leave the euro. Parliaments in several Eurozone states also have to approve any new bailout.
Mario Draghi announced that the ECB had raised its Emergency Liquidity Assistance to Greek banks for the first time since late June, by €900 million. Mr. Draghi said the amount was as advised by the Bank of Greece. It’s a move that could lead to a reopening of the banks in coming days, but the return to normality will take much longer. Also Mr Draghi said recovery is “broadening” but it is still less than satisfactory.
Federal Reserve Chairwoman Janet Yellen last Thursday said the U.S labour market had moved demonstrably closer to a more normal state, a reason why the central bank is likely to raise short-term interest rates later this year. Ms. Yellen again avoided specifying exactly when the Fed is likely to start lifting its benchmark rate from near zero. Most of the U.S. central bank’s policy makers have said they expect to start raising the rate this year if the economy continues to strengthen as they forecast, and many private economists consider September the likely time for a rate rise.
Sales at U.S. retailers unexpectedly dropped in June, curbing optimism about the strength of the rebound in consumer spending during the second quarter. Purchases decreased to -0.3 percent after a 1 percent advance in May which was smaller than previously reported.