The consensus is still too optimistic

Other forecasters were slow to appreciate the depth of the recession. Since then, the consensus GDP forecast has been revised down close to our own. But we think other forecasters are still underestimating how weak inflation will be, and how much further the Bank of England will expand QE.
Andrew Wishart Property Economist
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UK Economics Weekly

Inflation fears, Euro 2020 hopes

The mounting evidence that price pressures are rising is a threat to our forecast that CPI inflation won’t spend a long time above the 2% target until late in 2023. The good news, though, is that if inflation were more important than goals in the Euro 2020 football tournament, then at least one of England or Scotland would make it into the knockout stages.

11 June 2021

UK Data Response

GDP & International Trade (Apr.)

The jump in GDP in April was another sign that consumers are raring to spend as the economy reopens. And all the early indicators suggest that GDP growth was strong in May as well. As such, our forecast of the economy regaining its pre-pandemic level by the autumn is on track.

11 June 2021

UK Economics Chart Book

Inflation risks rising

The risks to our forecast that CPI inflation will rise from 1.5% in April to a peak of 2.6% in November before dropping back in 2022 are increasingly on the upside. Rises in shipping costs and global agricultural commodity prices as well as shortages of semiconductors and labour could all conspire to push CPI inflation higher this year and keep it above 2% next year. At the moment, though, we think that the lingering effects of last year’s collapse in output will prompt many firms to absorb the bulk of higher costs in their margins and to limit pay rather than pass them on to consumers via much higher prices. This “spare capacity” effect explains why we think core inflation will stay below 2% until late in 2023.

10 June 2021

More from Andrew Wishart

UK Housing Market Data Response

Mortgage Lending (Apr.)

Mortgage approvals for house purchase rose for the first time since November in April as prospective buyers responded to the extension of the stamp duty holiday. But even before that modest increase, home purchase activity remained well above pre-virus levels.

2 June 2021

UK Housing Market Data Response

Nationwide House Prices (May)

The boost to demand from the extension to the stamp duty holiday caused annual house price inflation to hit a seven-year high in May, and it is set to rise further in June. Thereafter, the end of the tax break should cause house price growth to cool, but not collapse.

1 June 2021

UK Housing Market Update

Rents show supply deficiency in London & the South

House-price-to-earnings ratios are close to record highs even in regions where there isn’t a shortage of supply. But the varying cost of rent across the country suggests that limited supply is an important reason why house prices are even higher in the most expensive regions. We doubt that the government’s proposed reforms to the planning system will lead to a big enough increase in supply to change this.

26 May 2021
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