Labour shortages becoming worse and more widespread

Labour shortages seem to be worse and more widespread than we had expected. Although the end of the furlough scheme in late September may ease some of the shortages, we doubt it will plug all the holes. As such, we now think labour shortages are unlikely to ease significantly until at least the middle of next year. That adds to the downside risks to our GDP forecast and the upside risks to our inflation forecast.
Bethany Beckett UK Economist
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UK Economics Weekly

Christmas parties, Omicron inflation risks, MPC’s dilemma

Some tentative evidence may already be emerging that the Omicron COVID-19 variant may have softened economic activity. It’s less clear what it means for inflation and there’s a risk that it exacerbates current price pressures. That’s why we think the Bank of England’s interest rate decision on 16th December will be a closer call than markets seem to believe. They are pricing in just a 20-30% chance of a hike from 0.10% to 0.25%.

3 December 2021

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

More from Bethany Beckett

UK Economics Update

MPC to keep feeling the heat from inflation expectations

The recent sharp rise in public and market-based measures of inflation expectations has worried the Bank of England. Inflation expectations will probably rise further as actual inflation continues to climb. And if they rise by more than the increase in actual inflation would suggest and/or they don’t fall back as actual inflation falls next year, then the Bank may raise interest rates earlier and faster than we currently expect.

5 October 2021

UK Data Response

IHS Markit/CIPS Flash PMIs (Sep.)

The small fall in the composite activity PMI in September indicates that the economy lost a little more momentum. But at the same time, there were clear signs that price pressures have continued to pick up. While it is difficult to know which the Bank of England will choose to put more weight on, our view is that the Monetary Policy Committee (MPC) won’t rush to raise interest rates.

23 September 2021

UK Economics Update

Inflation to fall sharply in 2022 despite higher utility prices

Given the recent surge in wholesale gas and electricity prices to record highs, it looks likely that Ofgem will opt for another chunky hike to the price cap on households’ utility bills next April. While this will hit household real incomes, it doesn’t change our view that inflation is set to drop back sharply next year.

17 September 2021
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