No need to fear as furlough enters final furlong

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.
Paul Dales Chief UK Economist
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UK Data Response

Labour Market (Nov./Dec.)

The labour market appears to have tightened after the end of the furlough scheme and at the start of the Omicron wave. So even though real wages are now falling and will decline further, we still expect the Bank of England to raise interest rates from 0.25% to 0.50% on 3rd February and to 1.25% by December.

18 January 2022

UK Economic Outlook

More inflation, more interest rate hikes

Although the hit to households’ real incomes from a bigger surge in CPI inflation than most expect (to a peak of almost 7% in April) explains why we think GDP growth will be slower this year than the consensus forecast, we still think that the leap in inflation will prompt the Bank of England to raise interest rates further this year than most economists anticipate, from 0.25% to 1.25%. The risks are that the labour market remains stronger for longer, CPI inflation stays above the 2% target well into next year and the Bank of England raises interest rates further in 2023.

17 January 2022

UK Economics Weekly

Ramifications could be bigger if PM stays than if he goes

The growing uncertainty over the Prime Minister Boris Johnson's position is unlikely to dent economic activity. Arguably, though, if a leadership challenge is avoided or Boris Johnson wins it, the medium-term political and economic ramifications could be bigger than if he steps down. Even so, we doubt recent political events will transform the economic outlook this year, which is one of inflation rising to a peak of 7% causing the economy to be weaker than most expect and the Bank of England to raise interest rates from 0.25% now to 1.25%.

14 January 2022

More from Paul Dales

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 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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