The message from the minutes of the Federal Reserve’s July monetary policy meeting was that if the Fed keeps moving towards its goal, interest rates could rise sooner than expected.

The committee members agreed that if progress in the labour market and higher inflation occurred more quickly than expected, the committee might deem it appropriate to begin raising interest rates sooner than was so far anticipated.

In the UK, inflation eased more than expected in July and the rate of house price growth slowed in June, according to data published last week by the Office for National Statistics. Consumer prices rose 1.6 per cent compared to the same month last year. This is down from a five-month high of 1.9 per cent in June. Economists polled by Reuters had forecast that inflation would fall to 1.8 per cent. The figures reduced pressure on the Bank of England to raise interest rates early (see item below). Separate data showed that annual house prices grew 10.2 per cent in June, down from 10.4 per cent in May.

Finally, growth among euro-area private firms has slowed this month but still grew at a faster rate than expected. According to the Markit’s Purchasing Managers’ Index (PMI) for both manufacturing and services, activity in these sectors in the region grew at a slower rate so far this month.

Based on surveys of thousands of companies across the region, and a good indicator of overall growth, the preliminary composite PMI declined to 52.8 in August from July’s 53.8. This is well below expectations for a decline to 53.4 predicted by a survey by Reuters.

However, readings above 50 still indicate expansion. According to Markit, the euro-area recovery remains “subdued and fragile” as the region struggles to stave off deflation.

This article was compiled by Bank of Valletta for general information purposes only.

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