UK Tourism, PBoC, and DXY in Focus

Yesterday, the Centre for Economics and Business Research suggested that the UK was facing a £2.8bn shortfall in tourist spending this year. This comes as footfall continues to be below that of pre-pandemic levels and growth in tourist numbers remains sluggish when compared against other popular destinations.

For example, compared to 2019 figures, there was a 5.5% shortfall in the number of international tourists visiting the UK last year. This comes below France which saw a rise of 10% over the same period and Spain and Turkey which rose 2% and 7.8% respectively.

UK wide, overseas tourists remain a major contributor to the economy with close to £30bn being spent in 2019, making it the fifth highest country in the world for inbound visitor spending. In its entirety, tourism (both from domestic and international visitors) is estimated to support 1.7 million jobs directly (well over 5% of the country’s workforce) with close to £75bn in economic output.

However, according to The World Economic Forum, the UK ranks 113th out of 119 countries for price competitiveness around travel and tourism. The UK also lags behind others in terms of money spent on marketing for international tourism, with VisitBritain’s budget of £18m considerably below that of Ireland which spends around £67m.

A string of trade bodies and analysts have thus called on the government to spend more on polices aimed at attracting international tourists, something which they say marks a significant ROI.

This morning saw the People’s Bank of China maintain its 1-year loan prime rate, keeping it at a record low of 3.35%. The decision follows the PBoC’s decision to cut rates 10bps in July and comes as the central bank tries to keep monetary conditions loose in an attempt to stimulate growth across the economy.

The PBoC also kept their medium-term five-year policy rate unchanged at 3.85%, which like the decision to hold the 1-year LPR met market expectations.

The central bank continues to grapple with an economy facing headwinds in the form of a downturn in consumption, fragility in local government debt and a precarious property sector. An increasingly tempestuous relationship between Washington and Beijing has also got many concerned over the extent to which this could impact transpacific trade between the two economic powerhouses.

The latest quarterly growth figures in China suggest that the world’s second largest economy grew just 0.7% over Q2.

The DXY dollar index has fallen to its lowest level in seven months as markets raise their convictions on the extent to which the Federal Reserve would cut rates over the coming months.

Over the last few weeks, a string of softer than expected PMI figures, weak corporate earnings and a miss on payrolls in the aftermath of the Fed’s decision to hold last month raised recessionary fears across the US. While such fears may have subsided – and the consensus still points to the US having a soft landing – concerns around output has put more pressure on the Fed to cut.

Nevertheless, strong retail sales and softer than expected inflation eased, in part, some of this pressure.

Indeed, as we gear up for Jackson Hole, markets are fully pricing in a 25bps cut at the next FOMC and around a 10% chance of a 50bps cut.

As we looked at last week, the primary focus at Jackson Hole will be the extent to which central banks are prepared to ease policy amid concerns around stubborn inflation, growth, labour markets and geopolitical risk.

The event will see thousands of policy makers, economists, academics, and commentators meet to discuss monetary policy, economic conditions and the geopolitical situation.