July credit – Continued government bond front-loading, weaker household credit demand: Government bond issuance remained strong (Rmb1.2trn, vs. Rmb0.7trn in Jul-24), accounting for the bulk of broad credit uptick. But this was partly offset by a larger-than-seasonal dip in new household loans, reflecting the transitory suspension of consumption trade-in programs and a slowing property market. Outlook: Credit growth appears set to slow from Aug. on fading fiscal impulse... Government bond financing – the key ...

Defence Spending Outlook - The UK government plans to increase defence spending to 2.5% of GDP by 2027, up from 2.3% in 2024, with a long-term goal of reaching 3.0% in the next Parliament[4] - This increase is expected to generate a near-term demand boost of approximately 0.15%[6] - Additional demand from increased European defence spending could raise demand by a further 0.1%[19] Economic Implications - The fiscal impulse model indicates that the increase to 2.5% of GDP will boost demand, but broader fiscal consolidation keeps the overall fiscal impulse negative[14] - If defence spending reaches 3.0% of GDP, the demand boost could be limited to an additional 0.15% due to potential tax increases and spending restraint in other departments[34] - The long-term impact on GDP growth is contingent on whether increased spending enhances supply capacity, particularly through R&D investments[41] Funding and Fiscal Constraints - The increase in defence spending will be financed by cuts to the foreign aid budget, which should not significantly offset the demand impact[14] - The Chancellor has limited fiscal headroom of £9.9 billion against the deficit rule, restricting the ability to increase day-to-day spending without offsetting measures[28] - The government may need to consider tax increases or spending cuts in other areas to fund further increases in defence spending[33]