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In our Market Monday Insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.
UK rents rise at highest rates since 2016
The rising cost of renting has again hit its highest level since comparable records began in 2016, with strong demand from tenants.
With fewer properties available to rent in many areas, the mismatch between supply and demand has pushed up costs for many people.
Prices paid by UK renters rose by 5.3% on average in the year to July, the Office for National Statistics said. The figures come as rising prices continue to squeeze household budgets across the UK.
The inflation rate, which can be used to measure how the cost of living has changed over time, fell to 6.8% in the year to July. Although this was down from 7.9% in June, it is still far above the Bank of England's ongoing target of 2%.
High demand from tenants at the same time as landlords reducing the number of available properties is one of the main reasons behind the rent increase.
The latest data from the Office for National Statistics (ONS) shows the UK average annual rent increase accelerated to 5.3% from 5.2% the month before.
There was a 5.5% increase in rents in London, which was the only region where house prices had fallen. This was observed as the sharpest increase in rent since comparable records began for London in 2006.
The same annual rent rise was recorded in the West Midlands as well as Yorkshire and the Humber.
There were even bigger rises for tenants in Wales, where the average was up 6.5% in a year, and in Scotland (up 5.7%). In Northern Ireland, where the data is collected in a different manner, there was a 9.2% increase in the year to May, although this was lower than a previous peak.
Official data on wages and inflation have led analysts to suggest that there could be further rises in the Bank of England's benchmark rate, which would only place further pressure on landlords and homeowners through relatively high mortgage rates.
Average UK house prices increased by 1.7% annually, down from a revised 1.8% rise in May, the ONS said, as the market cools as a result of the mortgage rate hikes.
China cuts key interest rate as economic recovery falters
China's central bank has cut one of its key interest rates for the second time in three months as the world's second-largest economy struggles to bounce back from the pandemic.
The People's Bank of China (PBOC) lowered its one-year loan prime rate to 3.45% from 3.55%. The country's post-Covid recovery has been hit by a property crisis, falling exports and weak consumer spending.
In contrast, other major economies have raised rates to tackle high inflation. The PBOC last cut its one-year rate - on which most of China's household and business loans are based - in July.
Economists had also expected the bank to lower its five-year loan prime rate, which the country's mortgages are pegged to. However, it was unchanged at 4.2%.
In a surprise move last week, short and medium-term rates were also cut.
China's economy has struggled to overcome several major issues in the wake of the pandemic, which saw much of the world shut down.In the same week, official figures showed China had slipped into deflation for the first time in more than two years.
That was as the official consumer price index, a measure of inflation, fell by 0.3% last month from a year earlier.
Meanwhile, official figures showed China's imports and exports fell sharply in July as weaker global demand threatened the country's recovery prospects.
Beijing has also stopped releasing youth unemployment figures, which were seen by some as a key indication of the country's slowdown.
In June, China's jobless rate for 16 to 24-year-olds in urban areas hit a record high of more than 20%.
US inflation continues to decelerate
Although headline inflation rebounded slightly in July, the underlying data suggests that US inflation continues to decelerate, providing welcome news for the Federal Reserve.
In July, consumer prices in the US were up 3.2% from a year earlier, higher than the 3% increase seen in June. However, prices were up only 0.2% from the previous month. In fact, in four of the last five months, monthly inflation was no higher than 0.2%.
The weakness of inflation is still largely driven by declining energy prices, which were down 12.5% in July from a year earlier and up only 0.1% from the previous month. Also, airline fares were down 18.6% from a year earlier and down 8.1% from the previous month.
On the other hand, food price inflation continues to be elevated, with food prices up 4.9% from a year earlier. Another source of underlying inflation was housing costs. These prices were up 7.7% from a year earlier, which was down from the previous month at 0.4%. In the past year, after a period of sharply rising home prices, these prices have stalled and even declined.
Over time, this will work its way into the shelter component of the consumer price index (CPI), thereby helping to reduce inflation during the second half of 2023. In fact, excluding shelter prices, the CPI was up only 1% in July from a year earlier. Excluding shelter and food, the CPI was unchanged from a year earlier.
Recall that, early in this era of high inflation, the majority of price increases were due to a surge in the costs of durable goods. That, in turn, was related to the pandemic-driven rise in demand for such goods across the US.
Now, after two years of declining demand for durables, prices of durables are declining. They were down 1.4% in July from a year earlier. Prices of nondurable goods were down 0.2% in July from a year earlier. Excluding food, nondurables prices were down 5.3%.
The services sector, on the other hand, accounts for plenty of inflation. Service prices were up 5.7% in July from a year earlier, heavily driven by shelter. The problem with service inflation is that the provision of services is highly labour-intensive.
With wages now rising faster than inflation, the danger is that the cost of providing services will continue to rise rapidly, thereby requiring companies to boost prices absent offsetting increases in productivity. The tightness of the labour market is one of the reasons for rising wages observed across the country.
