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.
Paul Dales Chief UK Economist
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UK Economics Weekly

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.

30 July 2021

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

Money & Credit (Jun.)

The money and credit data showed that consumers were willing to take on more debt in June. However, with consumers accumulating excess savings at a faster pace, there were signs that the resurgence in virus cases may have triggered some consumer caution, which could weigh on the recovery.

29 July 2021

More from Paul Dales

UK Economics Weekly

No need to fear as furlough enters final furlong

We think that concerns about the winding up of the furlough scheme are overdone for two reasons. First, at the end of May only 2.3m people were on furlough and half of them were working at least some hours. Second, by the time the scheme closes at the end of September, we think GDP will have risen back to its pre-pandemic peak. That means the economy can support a level of employment similar to the current level. As such, the furlough will probably go down in history as the scheme that averted a bloodbath in the labour market.

2 July 2021

UK Economics Weekly

BoE to unwind QE before it raises interest rates

The rapid rebound in economic activity revealed by this week’s data releases has started to prompt some questions about when and how the Bank of England will tighten monetary policy. Our answers are not until 2024, which is later than the tightening in late 2022 the markets have assumed, and by unwinding some quantitative easing first before raising interest rates. Both of those are consistent with the gilt yield curve steepening.

21 May 2021

UK Economics Weekly

Rise in capital stock diminishes risk of severe scarring

The small rise in the net capital stock last year is an encouraging sign that the pandemic won’t damage large parts of the capital stock and leave the level of GDP lower forever more. And while we remain more optimistic than most over the outlook for the economy, people shouldn’t get carried away by the stratospheric annual growth rates that pretty much every economic indicator will deliver over the coming months. The level of economic activity will be a much better barometer of the performance of the economy.

30 April 2021
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