UK unemployment rate and Euro zone industrial production

The UK unemployment rate rose to the highest in 17 years in August (from 7.9% to 8.1%) with the number of unemployed increased to 2.57 million, the most since 1994. In the Euro zone the industrial production rose by 1.2% m/m (after +1.1% m/m in July) and 5.3% y/y in August. The data benefited from the the increase of industrial production in Italy (4.3% m/m) and France (+0.6% m/m) that offset the decline in Germany (-1% m/m).                         

Conclusion: the increase of the unemployment rate is a clear sign of the weakenig of the UK economy and strenghtned the view of the BoE that the UK economy needed an easing of monetary policy as soon as in October despite the high level of inflation. Following the aneamic rate of growth in Q2 (0.1% q/q), the UK economy may fall short of economists expectations also in Q3 (the NIESR today predicted a 0.5% q/q growth in Q3).

The Euro zone industrial production data indicated that the Euro zone outlook in the short term may be better than expected. However, with the main business confidence indices in a downward trend, we expect the rebound over the summer to be temporary and the financial crisis over the summer to weigh on the data starting from September.