How would the economy cope with electricity shortages?

There is an outside risk that the UK could face some limited short-term rationing of electricity this winter if weather conditions were to be unfavourable. This risk isn’t yet significant enough to factor into our forecasts. But if the supply of electricity to industry had to be cut by 10% for one whole quarter, that may reduce GDP by around 0.4% in that quarter. While not helpful, that wouldn’t be a disaster.
Adam Hoyes Assistant Economist
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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 Data Response

Money & Credit (Oct.)

The rise in consumer credit in October adds to evidence that economic activity fared well at the start of Q4. But that no longer offers much comfort in light of the discovery of the new Omicron variant. While much remains uncertain, the risks to our (already subdued) GDP forecast appear to the downside.

29 November 2021

More from Adam Hoyes

UK Economics Update

High utility prices and tax rises a heavy hit to households

The double whammy of higher utility prices and the government’s new “health and social care levy” will reduce real household disposable incomes over the next year or so by £16.5bn, or 0.6% of GDP, compared to otherwise. By slowing real consumption growth, this risks setting back the economic recovery. While that may not prevent the Bank of England from raising interest rates in the first half of next year, it may mean that rates rise more slowly than investors currently expect.

28 September 2021

Energy Update

Growth in US oil production to remain sluggish

While we expect both drilling activity and oil production in the US to pick up slightly over the next year or so, we doubt it will return to pre-pandemic levels anytime soon. This should keep the Brent-WTI spread narrow but is unlikely to prevent oil prices from falling.

11 August 2021

Energy Data Response

US Weekly Petroleum Status Report

US commercial crude stocks resumed their downward trend last week. With domestic output still well below pre-virus levels and product demand likely to rise, we think crude stocks will fall further from here.

28 July 2021
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