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GDP (Q1 Final)

The small downward revision to Q1 GDP growth probably won’t stop the economy from rising back to its pre-pandemic peak in the coming months. And the larger-than-expected rebound in the household saving rate increases the potential for faster rises in GDP further ahead.
Paul Dales Chief UK Economist
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UK Economics Update

Wage growth slump or wage-price spiral?

Wage growth is a possible source of the “more persistent inflationary pressures” that the Bank of England has said would prompt it to act “forcefully” when raising interest rates. This Update highlights where to look for the early signs of either a softening in wage growth or a strengthening wage-price spiral.

29 June 2022

UK Economics Weekly

Too soon to conclude inflation won’t become more persistent

It’s too soon to conclude that the weak tone of this week’s news on activity means that inflation won’t become more persistent. Our proprietary measure of underlying/persistent CPI inflation rose to a new record high in May. And the flurry of higher pay settlements across the economy suggests that high inflation is feeding into faster wage growth. This may not necessarily be enough to prompt the Bank of England to start raising interest rates in 50 basis point steps. But we still think that rates will need to rise from 1.25% to 3.00% to tame inflation.

24 June 2022

UK Data Response

Retail Sales (May)

The fall in retail sales in May suggests that the decline in households’ real incomes from surging inflation is starting to hit consumer spending a bit harder. Even so, consumer spending appears to be softening rather than sinking, so we doubt that this will deter the Bank of England from hiking interest rates further.

24 June 2022

More from Paul Dales

UK Economics Update

CPI inflation may peak around 4%

Bigger rises in commodity and component costs than we had expected mean that we now think CPI inflation will rise from 2.1% in May to a peak of about 4.0% around the turn of the year. But we still think this will be a short, sharp spike in inflation that won’t feed into persistently faster pay growth or higher inflation expectations for a couple of years yet. As such, we suspect the Monetary Policy Committee will look through it and won’t tighten policy as soon mid-2022 as the financial markets expect.

6 July 2021

UK Economics Update

Recovery evolving rather than stalling

The recent softening in some indicators of activity is probably mostly a result of shifts in spending patterns within the economy rather than a sign that the recovery has already stalled. As such, we still expect monthly GDP to rise back to its pre-pandemic level by the autumn.

29 June 2021

UK Economics Update

MPC more optimistic, but no more hawkish

Other than the Monetary Policy Committee noting the growing upside risks to inflation alongside today’s policy decision, there were no real signs that it is thinking about tightening policy sooner, à la the Fed. We think policy will be tightened much later than the mid-2022 date the markets have assumed. We are hosting a Drop-In at 1400 BST/0900 ET on Thursday 24th June shortly after the MPC meeting to discuss if the Bank of England will soon follow the Fed by signalling a willingness to bring forward the withdrawal of policy support. You can register here.

24 June 2021
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