UK

UK Data Response

Labour Market (Nov./Dec.)

The labour market appears to have tightened after the end of the furlough scheme and at the start of the Omicron wave. So even though real wages are now falling and will decline further, we still expect the Bank of England to raise interest rates from 0.25% to 0.50% on 3rd February and to 1.25% by December.

18 January 2022

UK Economic Outlook

More inflation, more interest rate hikes

Although the hit to households’ real incomes from a bigger surge in CPI inflation than most expect (to a peak of almost 7% in April) explains why we think GDP growth will be slower this year than the consensus forecast, we still think that the leap in inflation will prompt the Bank of England to raise interest rates further this year than most economists anticipate, from 0.25% to 1.25%. The risks are that the labour market remains stronger for longer, CPI inflation stays above the 2% target well into next year and the Bank of England raises interest rates further in 2023.

17 January 2022

UK Economics Weekly

Ramifications could be bigger if PM stays than if he goes

The growing uncertainty over the Prime Minister Boris Johnson's position is unlikely to dent economic activity. Arguably, though, if a leadership challenge is avoided or Boris Johnson wins it, the medium-term political and economic ramifications could be bigger than if he steps down. Even so, we doubt recent political events will transform the economic outlook this year, which is one of inflation rising to a peak of 7% causing the economy to be weaker than most expect and the Bank of England to raise interest rates from 0.25% now to 1.25%.

14 January 2022

Most Recent Alerts

15 hours ago

UK Data Response

Labour Market (Nov./Dec.)

Key Forecasts

Main Economic & Market Forecasts

%q/q(%y/y) unless stated

Latest

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Q4 2022

2021

2022

2023

GDP

+1.3(+6.6)

+1.1(+6.4)

0.0(+7.7)

+1.2(+3.4)

+0.6(+2.9)

+0.6(+2.4)

(+7.3)

(+4.0)

(+3.0)

CPI Inflation (%)

(+5.1) (Nov.)

4.8

5.4

6.6

5.7

4.3

2.6

5.5

2.4

ILO Unemployment Rate (%)

4.2 (Oct.)

4.2

4.2

4.1

4.0

4.0

4.5

4.1

3.9

Bank Rate, end period (%)

0.25

0.25

0.50

0.75

1.00

1.25

0.25

1.25

1.25

BoE QE Target, end per. (£bn)

895

895

870

870

855

845

895

845

775

10-year Gilt, end period (%)

1.14

0.97

1.23

1.32

1.41

1.50

0.97

1.50

1.75

$/£, end period

1.37

1.35

1.35

1.33

1.32

1.30

1.35

1.30

1.30

Euro/£, end period

1.20

1.19

1.20

1.20

1.20

1.20

1.19

1.20

1.24

Sources: Capital Economics, Refinitiv


Ramifications could be bigger if PM stays than if he goes

UK Economics Weekly

19 January 2022

Our view

Our forecasts envisage CPI inflation rising further than most expect to a peak of 7% and the Bank of England raising interest rates quicker, from 0.25% now to 1.25% by the end of the year. COVID-19 has the capacity to spring more surprises. But the main macro risk is that CPI inflation stays above the 2% target for longer and that the Bank of England raises interest rates above 1.25% in 2023.

Latest Outlook

UK Economic Outlook

More inflation, more interest rate hikes

Although the hit to households’ real incomes from a bigger surge in CPI inflation than most expect (to a peak of almost 7% in April) explains why we think GDP growth will be slower this year than the consensus forecast, we still think that the leap in inflation will prompt the Bank of England to raise interest rates further this year than most economists anticipate, from 0.25% to 1.25%. The risks are that the labour market remains stronger for longer, CPI inflation stays above the 2% target well into next year and the Bank of England raises interest rates further in 2023.

17 January 2022