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Pay growth less inflationary than it looks, England v Scotland

The recent jump in pay growth has mainly been driven by base and compositional effects and is therefore less inflationary than it appears at first glance. That’s one reason why we think inflation will fall back below 2.0% next year and why the MPC won’t raise interest rates until 2025. Meanwhile, if economic variables are anything to go by, England may win tonight’s Euro 2020 clash with Scotland 2:1.
Thomas Pugh UK Economist
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UK Economics Weekly

Inflation to rise further and linger longer than in the US and EZ

Not only did the surge in CPI inflation to 9.0% in April leave inflation in the UK above the rates in both the US and the euro-zone, but inflation in the UK will probably rise further and stay higher for longer. That feeds into our forecast that the Bank of England will have to raise rates further than it expects, from 1.00% now to 3.00%. ECB Drop-In (24th May 10:00 ET/15:00 BST): Could the ECB deliver a hawkish surprise? Join economists from our Europe and Markets teams for a discussion about what to expect from the Bank’s tightening cycle, including the chances for a bumper hike in July or even an early move at next month’s meeting. Register now.

20 May 2022

UK Data Response

Retail Sales (Apr.)

The unexpectedly strong rise in retail sales in April suggests the cost of living crisis hasn’t caused consumer spending to collapse and means the economy may have a little more momentum than we previously thought. It also supports our view that a weaker economy on its own won’t solve the issue of sky-high inflation and that the Bank of England will have to raise interest rates further from 1.00% to 3.00%. ECB Drop-In (24th May 10:00 ET/15:00 BST): Could the ECB deliver a hawkish surprise? Join economists from our Europe and Markets teams for a discussion about what to expect from the Bank’s tightening cycle, including the chances for a bumper hike in July or even an early move at next month’s meeting. Register now.

20 May 2022

UK Economics Update

Weak confidence doesn’t make spending crash inevitable

The recent collapse in consumer confidence to a near-record low has added to the probability that the UK experiences a recession this year. But households’ large stock of savings and the tightness in the labour market means that weak confidence may not weigh on consumer spending as much as in the past.

19 May 2022

More from Thomas Pugh

UK Data Response

Public Finances (May)

May’s public finances figures suggest the strong economic recovery is starting to feed through into lower government borrowing. This reinforces our view that the tax hikes and spending cuts that most fear may be avoided.

22 June 2021

UK Data Response

Labour Market (Apr./May)

Another strong set of labour market figures released this morning will feed concerns about labour shortages and the possible impact on inflation of higher wage growth. But the level of employment is still well below its pre-crisis level and underlying wage growth is much weaker than the headline number, suggesting there is still plenty of slack in the labour market.

15 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
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