Shortages threatening to stifle the recovery

The list of anecdotal reports of labour and product shortages has grown ever longer in the past week and pose two major risks to the economy. First, that the near-term recovery will be slower than we expect. Second, that if they persist for longer than we suspect then inflation might not drop back to 2.0% in late-2022. These dual risks of slower GDP growth and higher inflation sound like a gentle whisper of stagflation.
Kieran Tompkins Assistant Economist
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UK Economics Update

Labour shortages to push up wages for a bit longer

The latest data suggest that the upward pressure on wage growth from labour shortages has a bit further to run. Admittedly, the discovery of the Omicron variant has clouded the near-term outlook for wages and the labour market, with higher virus infections and/or tighter restrictions once again a possibility. Nonetheless, our base case is that most of the upward pressure on wage growth will subside from mid-2022, underpinning our view that Bank Rate won’t need to rise as far as investors currently expect.

30 November 2021

UK Economics Update

Omicron – The risks to GDP and for the BoE

The restrictions announced by the government on Saturday in response to the new Omicron COVID-19 variant increase the downside risks to our GDP forecasts and the chances that the Bank of England delays increasing interest rates until next year. And although the worse-case scenario of another lockdown in January could reduce GDP by something in the region of 3.0% m/m, the one morsel of comfort is that the economy has become more resilient to lockdowns.

29 November 2021

UK Data Response

Money & Credit (Oct.)

The rise in consumer credit in October adds to evidence that economic activity fared well at the start of Q4. But that no longer offers much comfort in light of the discovery of the new Omicron variant. While much remains uncertain, the risks to our (already subdued) GDP forecast appear to the downside.

29 November 2021

More from Kieran Tompkins

UK Data Response

IHS Markit/CIPS Flash PMIs (Aug.)

The chunky fall in the composite activity PMI suggests that the economy struggled to gain fresh momentum in August despite the apparent easing of the “pingdemic” and the final relaxation of all domestic COVID-19 restrictions.

23 August 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

UK Data Response

IHS Markit/CIPS Flash PMIs (Jul.)

The second consecutive decline in the flash composite PMI in July came as no surprise to us as we expected the pace of the economic recovery to naturally slow after the big gains following the reopening of retail and hospitality. But there are also some signs that product and labour shortages are starting to restrain activity.

23 July 2021
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