According to the minutes of the US Federal Reserve’s June meeting, some businesses have indicated they had already “scaled back or postponed” plans for capital spending due to “uncertainty over trade policy”, while several others voiced concern about the impact of trade restrictions on future investment. The minutes show that policymakers have detected rising concern among US business about the potentially harmful impact of tariffs, as growing trade tensions prompt some executives to freeze investment plans.

Trade worries, however, are not eclipsing more positive news about the US economy. At the meeting, Fed officials raised interest rates by a quarter of a percentage point to a 1.75-2.00 per cent range and signalled that two more increases are likely in 2018 as they gave a rosy assessment of the economy.

In the meantime, German factory orders surged in May, ending a series of declines and pointing to a much-awaited pick-up in growth momentum in Europe’s largest economy. The 2.6 per cent rise in orders was more than twice as strong as the 1.1 per cent forecast by economists. It is also the first increase this year, although one should note that this data can at times be volatile.

There has been a mixed batch of indicators recently which show that the German economy is cooling, with industrial production dropping at the start of the second quarter and mild manufacturing activity in June. However last week’s factory orders report supports the Bundesbank’s bullish view that the economy’s weak start to the year will prove temporary.

Finally, the UK economy bounced back from a soft patch in the first months of 2018, according to a closely watched survey of the services sector that showed stronger than expected activity in the month of June. The IHS Markit/Chartered Institute of Procurement & Supply Purchasing Managers’ Index for the service sector improved to 55.1 in June from 54.0 in May. Economists had forecast the index to remain unchanged.

In the latest sign that bad weather held back the economy during the first quarter, the measure showed the strongest growth in eight months. A breakdown of the survey showed that demand was strong for business and financial services, while the hot weather led to a pick-up in consumer spending in bars and restaurants.

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