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Sorry Sight

Posted October 1, 2021 at 11:30 am

What’s going on?

Well, no one saw this coming: data out on Thursday showed that the UK economy grew faster than expected last quarter.

What does this mean?

Looks like economists completely missed the mark on just about all the outlooks they made back in August. UK businesses, the government, and the public have all been spending more than expected since April, which means the retail, construction, and services industries have all grown more than expected too. And that means the 4.8% economic growth economists were expecting missed the mark too: the economy actually grew 5.5% compared to the same time last year. That’s left it “just” 3.3% smaller than it was before the pandemic – on a par with Germany’s 3.3% and France’s 3.2%.

Why should I care?

For markets: Rate hikes ahoy.

The Bank of England (BoE) might be feeling vindicated: it’s been talking about raising interest rates before the end of the year, and a stronger-than-expected economy will make it more confident about doing just that. And that rate hike might just be the first of many, with traders expecting three more next year. The BoE will have to be careful, mind you: there are signs supply chain-gate has been dragging on the economy, and raising rates too quickly – which could deter spending – might knock the hard-won recovery off balance.

The bigger picture: Houses are expensive.

The UK housing market wanted in too: house prices were up 10% in September compared to the same time last year – the fifth month in a row of double-digit annual growth. That’s been driven in large part by pandemic-inspired tax incentives, though the market could certainly slow down when the government gets rid of them later this month. Of course, it’s not likely to cause too much of a drop-off: there’s still a shortage of houses and strong demand from homebuyers, and borrowing costs are still at a record low.

Originally Posted on September 30, 2021 – Sorry Sight

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