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UK Economics Update

UK Economics Update

CPI inflation may peak around 4%

Bigger rises in commodity and component costs than we had expected mean that we now think CPI inflation will rise from 2.1% in May to a peak of about 4.0% around the turn of the year. But we still think this will be a short, sharp spike in inflation that won’t feed into persistently faster pay growth or higher inflation expectations for a couple of years yet. As such, we suspect the Monetary Policy Committee will look through it and won’t tighten policy as soon mid-2022 as the financial markets expect.

6 July 2021

UK Economics Update

Recovery evolving rather than stalling

The recent softening in some indicators of activity is probably mostly a result of shifts in spending patterns within the economy rather than a sign that the recovery has already stalled. As such, we still expect monthly GDP to rise back to its pre-pandemic level by the autumn.

29 June 2021

UK Economics Update

MPC more optimistic, but no more hawkish

Other than the Monetary Policy Committee noting the growing upside risks to inflation alongside today’s policy decision, there were no real signs that it is thinking about tightening policy sooner, à la the Fed. We think policy will be tightened much later than the mid-2022 date the markets have assumed. We are hosting a Drop-In at 1400 BST/0900 ET on Thursday 24th June shortly after the MPC meeting to discuss if the Bank of England will soon follow the Fed by signalling a willingness to bring forward the withdrawal of policy support. You can register here.

24 June 2021
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UK Economics Update

Four-week delay to Freedom Day not a big blow to the economy

A four-week delay to the easing of the final domestic COVID-19 restrictions beyond 21st June is unlikely to prevent the economy from climbing back to its pre-pandemic size by the autumn. And although there is a clear risk that “Freedom Day” will be delayed again, as long as any further delays can be measured in weeks rather than months COVID-19 probably won’t leave a big scar on the size of the economy.

14 June 2021

UK Economics Update

Burst of reopening inflation will probably be temporary

We suspect that a bout of inflation triggered by the economy reopening will be brief and that a more widespread and sustained rise in inflation that would concern the Monetary Policy Committee won’t happen until late in 2023.

11 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

UK Economics Update

MPC more positive, but tighter policy still some way off

While voting today to leave interest rates at +0.10% and the stock of Quantitative Easing (QE) at £895bn, the Monetary Policy Committee (MPC) suggested conditions for tighter policy may be in place in late 2022. But our forecast for subdued inflation over the next few years suggests that the Bank won’t need to tighten policy until much later than that, perhaps 2024 or 2025.

6 May 2021

UK Economics Update

A wave of insolvencies is coming, but not a tsunami

There will be a surge in business insolvencies once the government’s moratoriums expire at the end of June and September. But a strong economic recovery should ensure that fewer businesses go bust than after the Global Financial Crisis and fewer than we first feared.

5 May 2021
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