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UK Economics Focus

UK Economics Focus

Spring Fiscal Statement – Big political bang, smaller economic boost

The Chancellor, Rishi Sunak, provided more support to the economy than we had expected over the next few years in today’s Spring Fiscal Statement, but he could have gone further in 2022/23. Instead, he chose to bank some extra cash so there’s scope for him to cheer up the public ahead of the 2024 general election. For the economy, it would have been better to help households more now.

23 March 2022

UK Economics Focus

Spring Fiscal Statement 2022 – Preview

The Chancellor, Rishi Sunak, will use his Spring Statement on 23rd March to soften the blow for households facing rising energy and food costs. However, any hopes that he will announce a big handout may be disappointed as he tries to strike a balance between the near-term political benefits of supporting households now and the medium-term political benefits of fiscal restraint that will allow him to loosen the purse strings ahead of the May 2024 general election. Bank of England Drop-In (17 March, 09:30 EST/14:30 GMT): The MPC has a tricky decision to make at its March meeting. Join Paul Dales and Ruth Gregory for a discussion about the outcome and the path ahead for UK growth, inflation and policymaking. Register here.

16 March 2022

UK Economics Focus

Fewer workers, higher wages

We think that most of the fall in the size of the UK’s labour force since the onset of the COVID-19 pandemic should eventually be reversed. Even so, we wouldn’t be surprised if this took another two years or so. That suggests to us that the labour market will be tighter for longer than the Bank of England expects, underpinning our view that interest rates will rise from 0.50% currently to 2.00% by end-2023. Bank of England Drop-In (17 March, 10:30 EST/14:30 GMT): The MPC has a tricky decision to make at its March meeting. Join Paul Dales and Ruth Gregory for a discussion about the outcome and the path ahead for UK growth, inflation and policymaking. Register here.

14 March 2022
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UK Economics Focus

Budget October 2021 – OBR delivers for Sunak

This Budget was perhaps more notable for what the Chancellor didn’t do rather than what he did. The OBR handed Rishi Sunak a significant upgrade to its forecasts for the public finances but, while the Chancellor spent some of the windfall a substantial amount was saved – allowing the Chancellor to start building a war chest that could be deployed ahead of the next election.

UK Economics Focus

The economics of Scottish independence look more difficult

The interactions between Brexit, the deterioration in Scotland’s fiscal situation and the continued lack of an easy option for the currency have made the economics of Scottish independence even more challenging than at the time of the first referendum in 2014. This doesn’t mean an independent Scotland couldn’t be an economic success. But it would require Scotland to put in place credible plans to cut the budget deficit. The resulting fiscal squeeze would restrain economic growth and mean that in its first 5-10 years, an independent Scotland is more likely to fall further behind the rest of the UK than catch it up.  

UK Economics Focus

Most labour shortages will probably be temporary

The widely reported labour shortages should mostly prove temporary. While it may take 6-12 months before some of the underlying causes unwind, recruitment difficulties probably won’t have a long-lasting upward impact on wage growth. As such, they shouldn’t persistently lift CPI inflation.

8 July 2021

UK Economics Focus

BoE may unwind QE before hiking rates

We think there’s a good chance that when the Bank of England’s Monetary Policy Committee starts to tighten monetary policy it will do it by unwinding some quantitative easing before it raises interest rates. That would be consistent with the gilt yield curve steepening rather than flattening.  

22 June 2021

UK Economics Focus

Pandemic will lead to more inflation…eventually

The economic recovery from the COVID-19 crisis may not push CPI inflation above 2.0% for a prolonged period until 2023, although there is a risk that it happens sooner. And further ahead, the government’s desire to use fiscal policy to achieve its political aims creates a clear incentive for it to change the Bank of England’s remit to ensure that interest rates remain low. As a result, over the next 10 to 20 years inflation of 2.5% rather than 2.0% may become the norm.

22 March 2021
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