What we learnt, and didn’t learn, from the BoE

We learnt three things from this Thursday’s Bank of England policy decision and were left in the dark on two key issues. As a result, some of our forecasts for money market rates and gilt yields have changed.
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

Hit to GDP from pingdemic not huge, but unhelpful

We estimate that the “pingdemic”, which has contributed to 1.1 million people self-isolating in the week ending 14th July, could reduce monthly GDP by 0.5-1.0% and is surely exacerbating the current shortage of workers. That’s not a huge hit to the economy and fewer people will be self-isolating after the rules change on 16th August. But it is clearly not helpful.

23 July 2021

UK Economics Weekly

New BoE and gilt yield forecasts

This week’s signs that two members of the Monetary Policy Committee have become more worried about the upside risks to inflation have led us to bring forward our forecast of when policy will be tightened from February 2024 to August 2023. That’s still some way off and is 12 months later than the financial markets expect. Because of that, we have also revised down our forecast for 10-year gilt yields.

16 July 2021

UK Data Response

Consumer Prices (Jun.)

The rise in CPI inflation from 2.1% in May to 2.5% in June was smaller than the leap in US inflation to 5.4% released yesterday, but we think the gap between the two will shrink as inflation in the UK climbs to around 4.0% by the end of the year. That said, as we suspect that the spike in UK inflation will be short-lived, we don’t expect the Bank of England to tighten policy anytime soon.

14 July 2021
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