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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.
Neil Shearing Group Chief Economist
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UK Economics Weekly

Inflation to rise further and linger longer than in the US and EZ

Not only did the surge in CPI inflation to 9.0% in April leave inflation in the UK above the rates in both the US and the euro-zone, but inflation in the UK will probably rise further and stay higher for longer. That feeds into our forecast that the Bank of England will have to raise rates further than it expects, from 1.00% now to 3.00%. 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.

20 May 2022

UK Data Response

Retail Sales (Apr.)

The unexpectedly strong rise in retail sales in April suggests the cost of living crisis hasn’t caused consumer spending to collapse and means the economy may have a little more momentum than we previously thought. It also supports our view that a weaker economy on its own won’t solve the issue of sky-high inflation and that the Bank of England will have to raise interest rates further from 1.00% to 3.00%. 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.

20 May 2022

UK Economics Update

Weak confidence doesn’t make spending crash inevitable

The recent collapse in consumer confidence to a near-record low has added to the probability that the UK experiences a recession this year. But households’ large stock of savings and the tightness in the labour market means that weak confidence may not weigh on consumer spending as much as in the past.

19 May 2022

More from Neil Shearing

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 Economics Weekly

Good politics on wages meets bad economics

The government’s plan to decrease the UK’s reliance on migrant labour in order to boost wages may be good politics, but it is not good economics. While labour shortages may push up wages in some sectors, if they push up costs and prices then that will just squeeze the real wages of workers in the rest of the economy. Indeed, without a step-up in productivity, any push for higher wages is likely to mean higher inflation.

8 October 2021

Global Economics Focus

An anatomy of supply shortages

Current supply shortages have been driven by several forces which look set to persist for six to twelve months. They have caused sharp increases in some prices (most notably energy and used cars) and also limited output. Central banks are unlikely to respond to specific shortages and should only tighten policy if aggregate demand exceeds aggregate supply on a sustained basis. Since this seems unlikely in most economies, we still expect the pace of tapering and then tightening to be very gradual.

6 October 2021
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