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UK Economics Update

UK Economics Update

Labour shortages to push up wages for a bit longer

The latest data suggest that the upward pressure on wage growth from labour shortages has a bit further to run. Admittedly, the discovery of the Omicron variant has clouded the near-term outlook for wages and the labour market, with higher virus infections and/or tighter restrictions once again a possibility. Nonetheless, our base case is that most of the upward pressure on wage growth will subside from mid-2022, underpinning our view that Bank Rate won’t need to rise as far as investors currently expect.

30 November 2021

UK Economics Update

Omicron – The risks to GDP and for the BoE

The restrictions announced by the government on Saturday in response to the new Omicron COVID-19 variant increase the downside risks to our GDP forecasts and the chances that the Bank of England delays increasing interest rates until next year. And although the worse-case scenario of another lockdown in January could reduce GDP by something in the region of 3.0% m/m, the one morsel of comfort is that the economy has become more resilient to lockdowns.

29 November 2021

UK Economics Update

Export woes not just a Brexit story

Brexit is undoubtedly a factor behind the slower post-pandemic recovery in UK exports relative to elsewhere. But doesn’t appear to be the sole reason. Instead, pandemic effects may explain at least some of the shortfall. That suggests some of the underperformance of UK exports may ease over the next couple of years as most of the impact of the pandemic fades.

24 November 2021
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UK Economics Update

Troubled Brexit waters ahead

With speculation rising that the UK will trigger Article 16 of the Northern Ireland Protocol, the big risk is that relations between the UK and the EU sour to such an extent that parts of the whole UK/EU Brexit deal unravel. Even if things do not deteriorate that far, the cloud of Brexit uncertainty adds to our concerns that amidst continued shortages and the drag on real incomes from high utility prices, GDP growth will be sluggish over the next six to nine months.

UK Economics Update

Which measure of GDP should we believe?

The divergence between the quarterly and the monthly measures of GDP have left it unclear whether the economy is still languishing at about 2.0% below its pre-pandemic level or if it is nearing that milestone. But regardless of how close the economy is to that benchmark, the big picture is that the recovery has now entered a slower and more challenging phase. And with supply shortages acting as an additional brake on output, we think that over the next six months GDP growth will be weaker than most expect.

9 November 2021

UK Economics Update

Rate rises coming, but not as many as the markets expect

By leaving interest rates at 0.10% and continuing its QE asset purchases, the Monetary Policy Committee (MPC) didn’t set off any early fireworks today. But it did throw on the bonfire the markets’ expectations that interest rates will rise to 1.0% by the end of next year. This provides some support to our view that rates will end next year at 0.50% and explains why gilt yields and the pound have fallen today.  

4 November 2021

UK Economics Update

Fiscal rules are there to be broken

The Chancellor’s new fiscal rules could help to convince voters and investors of the Conservative Party’s fiscal discipline. But with eleven rules having come and gone in the past seven years and with no less than nine new fiscal indicators unveiled in this Budget, the new targets are unlikely to constrain the government’s behaviour or be better understood than their predecessors.

3 November 2021

UK Economics Update

Autumn Budget 2021 Checklist

We are resending this Budget Checklist so clients can have it to hand ahead of today’s Budget. It is designed to help clients keep track of the key economic and public finances forecasts announced during the Chancellor’s Budget speech at 12.30pm and to provide some instant context. After the speech we will send clients our initial thoughts in a written Rapid Response and our more detailed analysis in an Economics Focus later this afternoon. We will also be recording a podcast with Group Chief Economist Neil Shearing about the implications of the Budget, which we will send to you this afternoon. If you’d like Neil to answer a specific question, please send it in a reply to this email.

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