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China GDP figures for the first half of the year are published on Tuesday, providing the latest indication of whether US President Donald Trump’s trade war is weighing on the economy.
Despite trade tensions and deflationary pressures, the country is widely expected to report a strong figure. A Bloomberg poll of economists still forecasts the country to grow 5.3 per cent in the first six months of 2025, in line with the government’s growth target “of around 5 per cent” for the year.
But the strong growth has been helped by “frontloading activities”, Deutsche Bank said in a recent note. Trump’s real and imagined tariffs have prompted businesses around the world to rush out shipments and orders before the duties take effect, boosting short term economic figures for export-oriented economies such as China.
The current consensus is that the country will fall short of 5 per cent economic growth for the year as a whole. The median bank forecast for the is 4.6 per cent, according to Bloomberg.
Recent price data confirmed China is still battling deflationary pressures as demand in the economy remains weak.
Although there is growing talk among analysts of “supply side reform” that could help address some of the vicious price competition contributing to deflation, such efforts may do little to revive demand in an economy where consumer confidence remains at record-low levels, according to official data from the National Bureau of Statistics.
Consumer confidence slumped in 2022 as a property market crash and suffocating pandemic restrictions took hold, and it has yet to rebound. William Sandlund
Will June inflation data keep the Fed on hold?
The US is expected to report a pick-up in inflation in June, which could reduce the chance of interest rate cuts by the Federal Reserve later this year.
On Tuesday, the Bureau of Labor Statistics will release the latest US consumer price index report, which is expected to show a headline rise of 2.6 per cent in June year-on-year, up from 2.4 per cent in May, according to economists polled by Bloomberg.
The core rate, which strips out the volatile food and energy sectors, is also expected to show a rise, with June’s rate forecast to come in at 2.9 per cent, compared with 2.8 per cent in May.
Fed officials have maintained that while inflation has remained subdued, more evidence is needed before they will consider cutting borrowing costs. Futures markets are currently pricing in two rate cuts by the end of the year, with the first one fully priced in by October, but not all analysts are convinced and the outlook could shift depending on the inflation data.
BNP analysts say June will be the first month in which the effect of President Donald Trump’s tariffs will be evident in the inflation data. Effective tariff rates — which take into account both nominal tariffs on a product as well as levies on inputs — remained steady in April and May but rose in June, as companies started to push the cost of levies on to consumers.
“June CPI is the first of three reports before the September FOMC [Federal Open Market Committee] that will inform the committee’s judgment of tariff pass-through and strongly influence its interest rate policy decisions,” wrote the BNP analysts.
“We think visible tariff pass-through over the summer and associated risks keep the Fed on hold through year-end,” they added. Kate Duguid
Is UK inflation on the rise?
Investors will closely look at UK inflation data published on Wednesday to assess the path for interest rates ahead of the Bank of England’s monetary policy decision next month.
Economists polled by Reuters expect the annual rate of UK inflation to rise to 3.5 per cent in June, from 3.4 per cent in May and well above the 2 per cent BoE target.
Services inflation, closely watched by the BoE as a better measure of underlying price pressures, is expected to ease marginally to 4.6 per cent in June from 4.7 per cent in the previous month.
There are concerns about inflationary pressures from rising food prices, with the British Retail Consortium reporting faster price growth in the sector, in part as a result of warmer weather. Higher food prices could have spillovers to restaurant prices amid higher employers’ national insurance contributions.
Any significantly higher reading in June would reignite fears that higher inflation is becoming more ingrained in the economy, providing reasons for policymakers to be cautious about rate cuts.
However, the UK economy contracted in April and May, losing momentum after a strong start to the year, and official data published on Thursday could show clearer indications of a loosening job market and softening wage pressures.
Economists expect regular wage growth, which excludes bonuses, to slow to 5 per cent in the three months to May from 5.2 per cent in the three months to April. The number of payroll employees, which has been declining since November 2024 at an accelerating rate, will also reveal the impact of slow growth and higher taxes on the labour market.
“A continual loosening in labour market conditions amidst uninspiring economic growth should, by lowering wage pressures, weigh on services inflation, while our base case is that the recent spike in food price inflation is a temporary phenomenon,” said Ellie Henderson, economist at the bank Investec. Valentina Romei
