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Will the US labour market slow further?
US hiring is expected to have slowed again in July, which could help make the case for the Federal Reserve to keep interest rates on hold this autumn.
The labour department is forecast to report on Friday that the US added 184,000 jobs in July, according to economists polled by Reuters, down from the 209,000 added in June. The unemployment rate is expected to be steady at 3.6 per cent, while month-over-month average hourly earnings are expected to have slowed to 0.3 per cent from 0.4 per cent the month prior.
US employment has remained resilient this year, even as the Fed has raised interest rates to the highest levels in 22 years. But after months of expectation-beating reports, hiring in June cooled more than expected. Investors and economists will be watching closely to see if that slowdown persists.
The Fed will also be watching the employment figures. The US central bank this week raised interest rates by 0.25 percentage points to a range of 5.25 to 5 per cent. Traders are divided over whether this will be the last increase of the cycle, and chair Jay Powell at this week’s meeting made clear the Fed had not yet decided whether the committee would raise rates again in September. A strong report this month would add to the case for further hikes, while a weak report would lower conviction about further tightening. Kate Duguid
Will the Bank of England deliver another extra large rate rise?
Attention turns back to the Bank of England next week with markets split on how much officials will raise interest rates by.
Following a surprise 0.5 percentage point rate rise to 5 per cent in June, traders upped bets that the BoE would move by the same amount on August 3, boosted by faster-than-expected pay growth data earlier this month.
But expectations dialled back following June’s inflation print, which showed the rate had cooled by more than economists had forecast, to 7.9 per cent.
Markets are now tipping in favour of a 0.25 percentage point rate increase, giving such a move a 70 per cent probability, and economists polled by Reuters are also plumping for 0.25 percentage point increase.
This would keep the BoE in line with the increases by the US Federal Reserve and European Central Bank this week.
But some big banks including NatWest, Barclays and BNP Paribas still expect another 0.5 percentage point increase, to 5.5 per cent.
“Core inflation [which strips out volatile food and energy prices] surprised to the downside in June and came in lower than the previous month, but this good news should not be overstated,” said Imogen Bachra, head of UK rates strategy at NatWest.
“Still-high services inflation combines with higher-than-expected wage inflation to keep a 50 basis point hike in August more likely than not, we think,” she added.
Service inflation is a key focus of the BoE’s monetary policy committee, with the rate easing to 7.2 per cent in June, still significantly higher than the 6.7 per cent forecast the BoE had in its May monetary policy report. Mary McDougall
Will the eurozone return to growth?
The eurozone is expected to return to slight growth in the second quarter, while inflation among its members is set to keep falling in July, boosting the single currency bloc which has struggled since Russia’s full-scale invasion of Ukraine last year.
Gross domestic product in the 20 countries that share the euro stagnated or even mildly contracted in the past two quarters. Yet economists polled by Reuters predict growth of 0.1 per cent in the three months to June when that data is released on Monday.
Inflation is also expected to be heading in the right direction, following falls in German and French price growth in July, despite it rising in Spain in the period. Economists forecast consumer prices in the bloc rose 5.2 per cent in July, down from 5.5 per cent in June. That would be the slowest rate of eurozone inflation since January 2022.
The numbers will be closely watched by policymakers at the European Central Bank who this week raised the possibility of pausing their interest rate rises in September after announcing a quarter percentage point increase.
Riccardo Marcelli Fabiani, an economist at consultants Oxford Economics, said this week’s national inflation data were “a mixed bag” while adding they provided “no reason for fearing the broad disinflationary trend the eurozone is going through at the moment may grind to a halt”. Martin Arnold