At risk of stalling, but Q3 may make up for Q2’s weakness

This week brought further signs that the “pingdemic” weighed on economic activity and evidence that in June, consumers amassed excess savings at a faster rate than in May. As a result, there’s clearly a risk Q2 GDP growth will be weaker than we previously thought. However, with the “pingdemic” likely to ease over the next month, COVID-19 case numbers falling and our CE Mobility Tracker and new electronic card payments ticking up, we are sticking with our forecast that GDP will return to its pre-virus peak in October. Even so, it’s clear that any further big gains in activity may have to wait until August.
Ruth Gregory Senior UK Economist
Continue reading

More from UK

UK Economics Weekly

Why we changed our mind on the BoE

There were two key reasons behind our decision to forecast that the Bank of England will first raise interest rates in 2022 rather than in 2023. First, there is more evidence that the rise in inflation is feeding into faster underlying wage growth and higher inflation expectations. Second, the Bank’s reaction function appears to have changed as it seems less willing to look through a temporary rise in inflation. That said, we still think that the Bank will raise interest rates a little later than the February 2022 date priced into the market and to a lower level by the end of 2024 than investors expect.

24 September 2021

UK Economics Update

MPC getting closer to tightening policy

While rates were left at +0.10% in an 9-0 vote and the Bank of England’s target stock of purchased assets at £895bn, today’s Monetary Policy Committee (MPC) policy statement suggests that the Bank is moving closer to raising interest rates. As such, we now think that rates could rise in early 2022, rather than in 2023 as we had previously thought.

23 September 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

More from Ruth Gregory

MPC Watch

Divisions emerge, but early end to BoE’s asset purchases unlikely

While the Bank of England will upgrade its near-term forecasts for inflation in its Monetary Policy Report (MPR) published on 5th August, it will probably still judge that the rise is transitory. And while Monetary Policy Committee (MPC) member Michael Saunders may break ranks to vote in favour of an early end to the Bank’s net asset purchases, we do not think others will join him in signalling that interest rate hikes are drawing closer.

29 July 2021

UK Data Response

Public Finances (Jun.)

June’s public finances figures provided further evidence that the strong economic recovery is feeding through into lower government borrowing. So despite rising debt service costs, we still think that the economy can do more of the job in “fixing” the public finances than a fiscal tightening.

21 July 2021

UK Data Response

Labour Market (May/Jun.)

May’s figures paint a picture of a labour market well on its way to recovery and will further fuel concerns about labour shortages and the possible boost to inflation from higher wage growth. But past revisions to the data suggest there is still slack in the jobs market. We think that a sustained rise in pay growth won’t take place until 2023 and that an interest rate rise is further away than the financial markets think.

15 July 2021
↑ Back to top