Labour Market (May/Jun.)

May’s figures paint a picture of a labour market well on its way to recovery and will further fuel concerns about labour shortages and the possible boost to inflation from higher wage growth. But past revisions to the data suggest there is still slack in the jobs market. We think that a sustained rise in pay growth won’t take place until 2023 and that an interest rate rise is further away than the financial markets think.
Ruth Gregory Senior UK Economist
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UK Economics Weekly

Closer to lift-off, but rates not going to the moon

We still think it is more likely that the first hike in interest rates will come next year rather than this year. But irrespective of when it happens, the key point is that the subsequent pace of monetary tightening is likely to be more gradual and slower than is currently priced into the financial markets.

15 October 2021

UK Data Response

GDP & International Trade (Aug.)

The 0.4% m/m rise in GDP in August confirms that the rapid gains in output, which in just 16 months lifted GDP from being 25.1% below its February 2020 pre-pandemic peak to 0.8% below, are now behind us. And shortages, including the petrol/energy crisis, may prevent GDP from rising much in the coming months. This weaker activity outlook may prevent the Bank of England from hiking interest rates this year.

13 October 2021

UK Economics Update

Labour shortages becoming worse and more widespread

Labour shortages seem to be worse and more widespread than we had expected. Although the end of the furlough scheme in late September may ease some of the shortages, we doubt it will plug all the holes. As such, we now think labour shortages are unlikely to ease significantly until at least the middle of next year. That adds to the downside risks to our GDP forecast and the upside risks to our inflation forecast.

12 October 2021

More from Ruth Gregory

UK Economics Weekly

Less scarring means lower inflation and higher tax revenues

The bigger and longer-lasting rises in commodity and component costs means that we now think that CPI inflation will rise to a peak of 4.0% at the turn of the year. But if we are right in thinking the pandemic won’t leave permanent economic scars, then the economy can run hotter before running into capacity limits and generating sustained higher inflation and tax revenues will be higher for longer than most people expect.

9 July 2021

UK Data Response

Money & Credit (May)

The signs that households have started to borrow again provide us with confidence that May’s surprise fall in retail sales was a result of a shift in spending from retailers to other areas as the economy continued to reopen, rather than an indication that the economic recovery is already spluttering.

29 June 2021

UK Economics Weekly

BoE’s less hawkish stance relative to the Fed likely to persist

With few signs the Fed’s hawkishness at its May meeting has spread to the Bank of England, we think that the downward revision to market interest rate expectations has much further to go. While we find it hard to argue very strongly about the precise timing of the policy tightening in the UK, we are more convinced that it will come later than in the US (in 2023) and the mid-2022 date the markets have assumed.

25 June 2021
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