Slowing sharply amid high inflation

Euro-zone GDP increased by more than we had expected in Q2 as reopening effects boosted the services sector, particularly in the southern countries. But things have already taken a turn for the worse. Business surveys are pointing to a big drop in demand: the manufacturing sector is already contracting, led by big falls in Germany. The coming months will see high energy costs, continued supply-chain problems, low water levels on the Rhine and the threat of gas rationing. What’s more, the services sector has also come off the boil. Nonetheless, although some measures of price pressures appear to have passed their peak, they still suggest that inflation will remain very high. And, as in other advanced economies, the labour market is remarkably tight which suggests that wage pressures will continue to build. Bank of England Drop-In (4^th August, 10:30 ET/15:30 BST): Join our post-MPC, 20-minute online briefing to find out why we think UK rates will rise by more than most expect, despite a looming recession. Register now.