Is Brexit uncertainty hurting the economy?

We estimate that Brexit uncertainty has knocked about 0.5 percentage points off GDP growth in the two years since the referendum through its impact on investment. Provided a deal is struck as we expect, the release of pent up investment could provide a boost to GDP growth next year.
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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 Data Response

Consumer Prices (Sep.)

The dip in CPI inflation in September feels a bit like the lull before the storm as we expect inflation to jump to close to 4.0% in October and to between 4.5% and 5.0% by April next year. As such, the fall in September probably won’t deter the Bank of England from raising interest rates from 0.10% in the coming months, although we think the markets have gone too far by pricing in rates rising to 1.00% next year.

20 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

More from Capital Economics Economist

Emerging Markets Economics Update

EM easing cycles not all to do with the Fed

Financial markets have come round rapidly in the last few weeks to our view that EM monetary policy will be loosened further this year. But EM loosening cycles have much more to do with weak domestic growth and low inflation than the prospect of interest rate cuts in the US.

20 June 2019

European Economics Focus

Cyprus to outperform euro-zone, but risks remain

Cyprus has now recovered from the economic crisis of 2012-13, which was caused primarily by its oversized banking sector. While a number of risks remain, notably the high level of non-performing loans, we expect the economy to continue expanding more rapidly than the euro-zone as a whole for the next few years, and the public debt ratio to fall steadily.

20 June 2019

Emerging Europe Data Response

Russia Activity Data (May)

May’s activity data suggest that, following extremely weak GDP growth in Q1, Russia’s economy has failed to gather much momentum in Q2.

20 June 2019
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