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Budget Preview – Restraint now, largesse later

Despite the improving outlook for the public finances, the rumours that the Chancellor will set himself some fairly stringent fiscal rules suggest that there’s not going to be a net giveaway in the Budget and Spending Review on Wednesday 27th But our forecast that the economy will emerge from COVID-19 with less long term scarring than the Office for Budget Responsibility (OBR) expects suggests the Chancellor will be able to cancel scheduled tax hikes and/or spending cuts before the 2024 election.
Paul Dales Chief UK Economist
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UK Data Response

S&P Global/CIPS Flash PMIs (May)

The flash PMI survey for May suggests that economic growth has slowed to a crawl and that the risk of a recession has not gone away. Even so, weakness in the economy doesn’t seem to be filtering into an easing of price pressures. As a result, we think that interest rates still have much further to rise, from 1.00% now to 3.00% in 2023. 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.

24 May 2022

UK Data Response

Public Finances (Apr.)

The economic wind that has recently been blowing the public finances to undershoot forecasts adds more pressure on the Chancellor to launch in the coming weeks a big package of measures to help households cope with the cost of living crisis. But as the economic wind is already showing signs of becoming less favourable for the public finances, we think the support package is more likely to be small and targeted. 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.

24 May 2022

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

More from Paul Dales

UK Data Response

Public Finances (Sep.)

September’s public finances figures mean that the Chancellor will be able to boast in next Wednesday’s Budget that he has reduced government borrowing much quicker than expected. But we suspect he’ll set himself some tight fiscal rules that will mean he won’t announce a major net giveaway next week.

21 October 2021

UK Economic Outlook

A taste of stagflation

The UK economy is experiencing a taste of stagflation. This won’t be anywhere near as severe or as persistent as in the 1970s. But for the next six months, the worsening product and labour shortages will put the brakes on the economic recovery at the same time as higher energy prices drive up CPI inflation from 3.2% in August to a peak of around 5.0% in April next year. The Bank of England’s growing fear that some of this rise in inflation is becoming embedded within wage growth and inflation expectations means it is on the cusp of raising interest rates from 0.10% for the first time since the pandemic. The markets have priced in increases in interest rates to over 1.00% by the end of next year. Our forecast that economic activity will be weaker than the Bank expects over the next six months and that CPI inflation will fall back to the 2% target in late 2022 and in 2023 suggests that interest rates won’t rise that far that fast.

19 October 2021

UK Data Response

GDP & International Trade (Aug.)

The 0.4% m/m rise in GDP in August confirms that the rapid gains in output, which in just 16 months lifted GDP from being 25.1% below its February 2020 pre-pandemic peak to 0.8% below, are now behind us. And shortages, including the petrol/energy crisis, may prevent GDP from rising much in the coming months. This weaker activity outlook may prevent the Bank of England from hiking interest rates this year.

13 October 2021
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