Week Ahead (1 August)

W/C Monday, 1 August - EIB to release €1.05 billion of EU financial assistance to Ukraine

On 25 July, the European Investment Bank (EIB) approved €1.59 billion of financial assistance to Ukraine, intended to finance the war-torn country’s infrastructure and urgent needs. It is understood that approximately €1.05 billion of these funds will be made available this week, to cover priority short-term financing needs, provide support to strategic state-owned companies, ensure urgent repairs of damaged infrastructure, resume the provision of disrupted municipal services, and support urgent energy and energy efficiency measures in preparation for winter.

The financing will be offered at favourable terms, benefitting from the EU guarantee under the external lending mandate. This is the second package under the EIB in support of Ukraine, following the first tranche of €668 million, disbursed in March.

Tuesday, 2 August - Latest Eurozone composite PMI to be released

S&P will release its latest Eurozone composite PMI on Tuesday, reflecting conditions in the services and manufacturing industries in July. Flash composite figures, released on 22 July, suggest that the Eurozone economy has contracted, with all key measures down on the previous month. The flash Eurozone output index hit 49.4 for a 17-month low (as a reminder, a PMI index reading below 50 indicates contraction). Services grew at a markedly lower rate than in June, registering 50.6 in July's flash compared to 53.0 the month before. Manufacturing output continued its decline, falling to its lowest level in 26 months (46.1), while the overall manufacturing PMI fell to 49.6 from 52.1 a month earlier, again indicating contraction in the area.

Signs point towards the possibility of a recession in Q3 2022, with firms indicating that they are likely to cut output for the remainder of the year. A fall in the level of new orders and weaker than expected sales have led to build-ups of unsold stock in the manufacturing area, meaning that companies are likely to slow production in the coming months. The ECB's recent interest rates hike will also add to pressures facing businesses, increasing borrowing costs and constricting growth further.

Thursday, 4 August - Sunak and Truss face off in second televised debate

On Thursday, the final two candidates for the leadership of the Conservative Party, former Chancellor of the Exchequer, Rishi Sunak, and the Foreign Secretary, Liz Truss, will go head-to-head in their second televised debate. Truss has emerged as the leading candidate and has recently received the public endorsements of British Defence Secretary Ben Wallace and Chancellor Nadhim Zahawi. She is currently leading the polls among members of the Conservative Party.

The economy has been the most contested topic so far, as the UK is currently experiencing a cost-of-living crisis driven by inflation. Truss is campaigning on a tax-cutting platform, including cuts to corporation taxes, and has flagged her intention to examine the Bank of England's mandate for setting interest rates.

Sunak had initially pledged to retain the tax increases he brought in during his tenure as Chancellor but in response to Truss’ growing lead among party members, he has pledged to cut the basic rate of income tax to 16% from 20%, in what he described as “the biggest income tax cut since Margaret Thatcher’s government.”

Thursday, 4 August – Bank of England Monetary Policy Committee to hold meeting

The Bank of England Monetary Policy Committee of the Bank of England (BoE) will meet on Thursday, with expectations high that it will increase interest rates for the sixth meeting in succession.

BoE’s interest rates are currently at 1.25%. It remains uncertain whether the Bank will opt for 50-basis point hike or it will stick to a 25bp increase. On 19 July, the BoE governor admitted that a 50bp is on the table. Inflation in the UK has reached a 40-year high, rising by 9.4% in June, nearly five times higher than its declared target rate of 2%.