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Real wage squeeze unlikely to be a rerun of 2008-14

The looming squeeze on real wages means that the near-term outlook for consumption and GDP has weakened. That said, we don’t expect anything as bad as the squeeze in 2008-14. In fact, real household disposable income may well recover by early 2023.
Adam Hoyes Assistant Economist
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UK Economics Weekly

Fall in confidence not enough to rule out aggressive rate hikes

Signs that business confidence has started to ease may provide the Monetary Policy Committee with some reassurance that firms' pricing power will soon soften. But the danger that bigger increases in wages will further add to businesses' costs, forcing them to raise their prices by even more, suggests that the Bank may need stronger proof that pricing power is waning before ruling out the need for more aggressive rate rises. We expect interest rates to rise from 1.25% to 3.00%. And for as long as evidence of increased pricing power exists, the risk of even higher rates will linger.

1 July 2022

UK Data Response

Money & Credit (May)

The more muted rise in unsecured borrowing in May suggests the cost of living crisis and recent plunge in consumer confidence are prompting households to exercise a bit more caution. That adds to reasons to think consumer spending is struggling and that the economy will be very weak over the coming months.

1 July 2022

UK Data Response

GDP (Q1 Final)

The final Q1 GDP data leave households looking a bit more vulnerable to the big fall in real incomes that’s going to hit in Q2 and Q3. Although GDP and consumer spending won’t fall as far as real incomes, it’s pretty clear that the economy is going to be very weak for a while. A recession is a real risk.

30 June 2022

More from Adam Hoyes

UK Economics Update

A catch-up on COVID

Given the huge surge in cases throughout December, the COVID-19 situation is once again set to be the biggest determinant of the performance of the economy over the first few months of 2022. We aren’t factoring in any additional UK-wide restrictions, but we still expect increased consumer caution and self-isolations to weigh on economic activity in the first quarter.

5 January 2022

UK Data Response

IHS Markit/CIPS Flash PMIs (Dec.)

The fall in the composite PMI in December doesn’t come as much of a surprise given the surge in cases of the Omicron variant of COVID-19. But it was much bigger than expected, and shows that caution among businesses and consumers is starting to weigh on activity. It also shows the downside risks to our GDP forecast are growing, supporting our view that the Bank of England will leave rates on hold today. Note: Central Bank Drop-In – The Fed, ECB and BoE are just some of the key central bank decisions expected in this packed week of meetings. Neil Shearing and a special panel of our chief economists will sift through the outcomes on Thursday, 16th December at 11:00 ET/16:00 GMT and discuss the monetary policy outlook for 2022.

16 December 2021

UK Economics Update

Export woes not just a Brexit story

Brexit is undoubtedly a factor behind the slower post-pandemic recovery in UK exports relative to elsewhere. But doesn’t appear to be the sole reason. Instead, pandemic effects may explain at least some of the shortfall. That suggests some of the underperformance of UK exports may ease over the next couple of years as most of the impact of the pandemic fades.

24 November 2021
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