As this week's macroeconomic readings unfold, providing insights into the state of the British economy, certain trends and challenges have emerged. The UK is facing a potential inflation rally, with average wages increasing by 6.9% over the three months ending in May, indicating a competitive labor market that can drive inflation higher. This pro-inflationary factor is closely monitored by the Bank of England, which stands ready to react if necessary. The central bank's ongoing efforts to raise interest rates are aimed at gaining control over inflationary pressures.

However, the GDP data for May reflects a recessionary phase, with the economy contracting by 0.1% month-on-month. While this decline was not as severe as initially anticipated, the UK continues to grapple with inflation, logistic chain disruptions, and domestic challenges. Despite the current recessionary signals, there is optimism that the Bank of England's measures will yield positive results, leading to a decline in inflation and a normalization of economic processes. It is hoped that with time, negative statistics will gradually subside.

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What do this week's macroeconomic readings - wages, GDP, industrial production - tell us about the state of the British economy? Will the recession be deep? Will the BoE continue to raise rates

The UK faces a risk that the inflation rally will develop further. This week, statistical data has demonstrated that average wage over the three months ended in May increased by 6.9% against a rise of 6.7% earlier. There had been forecast an increase but a less expressed one.

The growth of wages shows that the employment market is vigorous enough to compete over labour resources through raising payments. It is an apparent pro-inflationary factor. The Bank of England monitors this and will react if needed.

The BoE's interest rate will be growing until inflation gets under control.

The GDP data for May in the UK reflected a recession. The economy lost 0.1% m/m after a rise of 0.2% in April. The expectations had been gloomier, suggesting a decrease of 0.3%. The indications of a recession were not unexpected. The UK suffers greatly from inflation, logistic chain breaches, and domestic problems.

It is doubtful whether the recession will be profound. Most probably, the Bank of England's effort will soon bring fruit, inflation will go down, and economic processes will start normalising. There might be a month or two more of negative statistics.

What does the industrial production reading from the Eurozone tell us about the state of the European economy and European industry?

In May, industrial production in the Eurozone increased by 0.2% m/m, turning out inferior to the forecast. Calculated year by year, it dropped by 2.2% after a rise of 0.2% in April.

It is very weak data. It was not unexpected, but the decrease in industrial production had been predicted to be less expressed.

The statistics are comprised of extremely high purchase prices and increased salaries, and capacity maintenance expenses. At the same time, enterprises cannot count on future improvements and prefer to decrease production volumes, which allows for cutting down on estimated loss.

Most probably, the picture of industrial production will be similar in June.

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