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Public Finances (Apr.)

The economic wind that has recently been blowing the public finances to undershoot forecasts adds more pressure on the Chancellor to launch in the coming weeks a big package of measures to help households cope with the cost of living crisis. But as the economic wind is already showing signs of becoming less favourable for the public finances, we think the support package is more likely to be small and targeted. ECB Drop-In (24th May 10:00 ET/15:00 BST): Could the ECB deliver a hawkish surprise? Join economists from our Europe and Markets teams for a discussion about what to expect from the Bank’s tightening cycle, including the chances for a bumper hike in July or even an early move at next month’s meeting. Register now.
Paul Dales Chief UK Economist
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UK Economics Weekly

Fall in confidence not enough to rule out aggressive rate hikes

Signs that business confidence has started to ease may provide the Monetary Policy Committee with some reassurance that firms' pricing power will soon soften. But the danger that bigger increases in wages will further add to businesses' costs, forcing them to raise their prices by even more, suggests that the Bank may need stronger proof that pricing power is waning before ruling out the need for more aggressive rate rises. We expect interest rates to rise from 1.25% to 3.00%. And for as long as evidence of increased pricing power exists, the risk of even higher rates will linger.

1 July 2022

UK Data Response

Money & Credit (May)

The more muted rise in unsecured borrowing in May suggests the cost of living crisis and recent plunge in consumer confidence are prompting households to exercise a bit more caution. That adds to reasons to think consumer spending is struggling and that the economy will be very weak over the coming months.

1 July 2022

UK Data Response

GDP (Q1 Final)

The final Q1 GDP data leave households looking a bit more vulnerable to the big fall in real incomes that’s going to hit in Q2 and Q3. Although GDP and consumer spending won’t fall as far as real incomes, it’s pretty clear that the economy is going to be very weak for a while. A recession is a real risk.

30 June 2022

More from Paul Dales

UK Data Response

Labour Market (Mar./Apr.)

Even though the economy contracted in March and may be on the brink of a recession, jobs growth strengthened, the unemployment rate fell to a 47-year low of 3.7% and wage growth accelerated. This supports our view that the Bank of England will have to raise interest rates further than widely expected, from 1.00% now perhaps all the way to 3.00% next year.

17 May 2022

UK Economics Update

Next Brexit bust-up risks adding to inflation

The UK government’s plan to use domestic legislation to overwrite parts of the Brexit Northern Ireland Protocol risks creating another headwind for the economy and exacerbating price pressures at a time when CPI inflation is on the cusp of rising to a 40-year high of 9%.

16 May 2022

UK Data Response

GDP (Mar. & Q1)

It now seems likely that GDP will contract in Q2. And with the full hit of the cost of living crisis yet to be felt, the chances of a recession have just risen. Even so, with price pressures still strengthening, the Bank of England may have no choice but to add to the woes of households by raising interest rates further.

12 May 2022
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