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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

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 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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