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.
Kieran Tompkins Assistant Economist
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UK Economics Weekly

Why we changed our mind on the BoE

There were two key reasons behind our decision to forecast that the Bank of England will first raise interest rates in 2022 rather than in 2023. First, there is more evidence that the rise in inflation is feeding into faster underlying wage growth and higher inflation expectations. Second, the Bank’s reaction function appears to have changed as it seems less willing to look through a temporary rise in inflation. That said, we still think that the Bank will raise interest rates a little later than the February 2022 date priced into the market and to a lower level by the end of 2024 than investors expect.

24 September 2021

UK Economics Update

MPC getting closer to tightening policy

While rates were left at +0.10% in an 9-0 vote and the Bank of England’s target stock of purchased assets at £895bn, today’s Monetary Policy Committee (MPC) policy statement suggests that the Bank is moving closer to raising interest rates. As such, we now think that rates could rise in early 2022, rather than in 2023 as we had previously thought.

23 September 2021

UK Data Response

IHS Markit/CIPS Flash PMIs (Sep.)

The small fall in the composite activity PMI in September indicates that the economy lost a little more momentum. But at the same time, there were clear signs that price pressures have continued to pick up. While it is difficult to know which the Bank of England will choose to put more weight on, our view is that the Monetary Policy Committee (MPC) won’t rush to raise interest rates.

23 September 2021

More from Kieran Tompkins

UK Data Response

IHS Markit/CIPS Flash PMIs (Jun.)

The fall in the flash composite PMI from a record high of 62.9 in May to 61.7 in June indicates that the pace of the recovery may have peaked. That suggests the monthly rises in GDP will ease back from the 2.3% m/m gain recorded in April. Nonetheless, the level of GDP will continue to climb towards and beyond pre-pandemic levels.

23 June 2021

UK Data Response

IHS Markit/CIPS Flash PMIs (May)

Another rise in the flash composite PMI from 60.7 in April to a record high of 62.0 in May points to the economic recovery shifting through the gears and picking up speed. That suggests the pace of the rises in GDP should accelerate further from the 2.1% m/m rise in March.

21 May 2021

UK Economics Update

Surge in pipeline price pressures an upside risk to inflation

Supply issues have raised price pressures for producers, which they have begun to pass on. But with doubts around the reliability of survey evidence and the limited pass-through to consumer prices, the surge in pipeline price pressures is, for now, an upside risk to inflation and shouldn’t impact Bank Rate.

10 May 2021
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