Economy in Brief

Inflation in the United Kingdom in August rose by 0.3% on the CPIH measure; excluding food, alcohol, energy, and tobacco (core), the increase was a milder 0.2%. Headline inflation in the U.K. runs at a 4.3% annual pace over three months; the core measure runs at a 3.6% annual rate pace, a bit weaker but still over the top of the U.K. 2% target.

Sequential trends: Sequential inflation in the U.K. is stubborn at 4.1% over 12 months, at a 3.9% annual rate over six months, and at 4.3% an annual rate over three months - a pace that is consistent, steady, and excessive. Core inflation runs at 4% over 12 months, edges down to a 3.6% annual rate over six months and stays at 3.6% over three months - still relatively steady and excessive but with a hint of progress.

Inflation monthly: In August among the 10 detailed categories, inflation accelerated in five of them, in July it also accelerated in five of them, and in June there was an acceleration in four of them. Diffusion calculations show that the tendency for inflation to accelerate across categories, the headline and core has been slightly below the 50% mark making inflation slightly disinflationary.

Sequential diffusion: Sequentially diffusion has been behaving better, with 12-month inflation higher than 12-month-ago inflation by a slight margin with the diffusion reading of 54.5%. However, over 6 months comparing inflation to 12-months across categories, diffusion is only 45.5%, and over 3 months comparing inflation to inflation over 6 months, the diffusion calculation steps down to 36.4%. When diffusion is above 50%, inflation is accelerating in more categories than it is decelerating; when it's below 50%, inflation is showing more deceleration than it is acceleration. These diffusion calculations are encouraging, although they are only indications of breadth not of importance because they just compare across categories and they are executed without weighting. The headline and the core measures bring weighting into play, and we see the impact of that by comparing those measures sequentially. Still, diffusion is an interesting measure on its own because it helps to show how widespread pressures are.

U.K. unemployment- At the same time, that inflation has been stubborn. The unemployment rate in the U.K. has gradually been creeping up. The U.K. claimant rate of unemployment, which is just a little bit more topical, has been slightly more stable sequentially than the overall unemployment rate and in June and July that rate of unemployment gauge edged slightly lower. However, it's a different concept than for overall unemployment although the two readings are similar in terms of their levels when ranked over the same. They're very different with the unemployment ranking through June 2025 at 34.5% while the June claimant unemployment rate ranking is high relative to its historic experience at its 75.3 percentile - much higher.

The finalized version for EMU industrial production in the European Monetary Union in July showed that much better than preliminary data had suggested. Overall output rose 0.3% in July, but output in manufacturing on the month rose by 0.7%. Consumer goods output rose by 1.4% on the month with consumer durables output up by 1.1% and nondurables output up by 1.5%. Intermediate goods output rose by 0.5% with capital goods output rising by 1.3%. All of these are very solid numbers.

The median result for reporting European Monetary Union members had shown a decline of 0.6% for manufacturing output. And, of course, the problem with that is that it's a median among countries without weights being applied to account for size. Germany, for example, showed an increase in output in July of 2.2% in its manufacturing sector, France showed a decline of 1.6%, Italy showed an increase of 1.4%, with Spain showing a rise of 3.8%. That's three of the largest 4 monetary union members showing solid increases in output.

Sequential data showed that output is holding up quite nicely with growth 2.2% over 12 months, up 3.1% at an annual rate over six months and up by 2.5% in an annual rate over three months. For manufacturing, the results are roughly the same, with a 2.1% gain over 12 months, 3.5% annualized over six months and 2.4% annualized over three months.

The quarter-to-date numbers showed that output is developing nicely in the third quarter with overall output up at a 1.2% annual rate as of July, the first month in the quarter with that growth rate representing annualized growth in July over the second quarter average; manufacturing output on the same basis is up at a 2.6% annual rate. All the sector growth rates are positive as well QTD except for intermediate goods.

Percentile queue standings rank current growth rates among past historic growth rates (back to 2007) and on this basis, overall production growth has a 63.3 percentile rank, manufacturing has a 60.1 percentile rank, consumer goods IP is extremely strong with a 98.2 percentile rank, pushed ahead by nondurables that have a 98-percentile rank. Consumer IP growth is held back somewhat by consumer durables that have only a 45.9 percentile ranking, below its median for the previous period. Intermediate goods and capital goods also have below-median rankings (rankings below 50%) at the 43.6 percentile for intermediate goods and 42.2 percentile for capital goods. Still, none of the sectors is particularly weak; being at the 42nd percentile or better means that the shortfall from the median is not extreme and the weighted average for overall production and for manufacturing still stands in its 60th percentile or better.

As we look down the column to look at country-specific manufacturing readings, we find that there are only 4 of 13 reporting monetary union members with manufacturing output below its median in July. And those countries are Finland, the Netherlands, Luxembourg, and Greece, all moderate to small-sized economies.

On balance, the performance the monetary union output in July is quite solid. And these readings are joined by an August reading for IP in the United States that showed a surprising positive turn on the month. It's too soon to say that conditions globally are improving faster or more than had been expected; however, there is a whiff of that in the air despite some sour readings on job growth in the United States.