UK Markets

UK Economics Weekly

UK Economics Weekly

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.

18 June 2021

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

Households still amassing excess savings, 3rd wave fears

We don’t think that consumers’ reluctance to pay for their purchases on plastic, or their still-elevated cash holdings, are signs that they will be less willing to spend in the future. Meanwhile, the surge in new daily COVID-19 cases has raised concerns about whether the easing in restrictions will go ahead as planned on June 21st. But if there is a delay, we don’t think it will make a big difference to our GDP forecast. It is the reopening of shops, pubs and restaurants in April and May, rather than the easing of the final restrictions on social distancing, nightclubs and big events, that is the key driver of our forecast for GDP growth of 6.5% q/q in Q2 and 8.0% in 2021 as a whole.

4 June 2021
More Publications

UK Economics Weekly

Troubles in construction unlikely to be repeated elsewhere

Output in the construction sector was already 2.3% above its pre-crisis level in March and there is evidence that supply constraints are starting to bite. However, there is still plenty of spare capacity in the economy as a whole and much of the increase in the prices of construction material is being driven by a global shortage. As such, we do not expect the situation in the construction industry to be repeated in other sectors when they reach their pre-crisis peaks.

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.

UK Economics Weekly

Rapid recovery and rising inflation risks

The 2.1% m/m gain in GDP in March added to other evidence that the economy is recovering more rapidly from the COVID-19 crisis than even our above consensus view had suggested. As a result, we have nudged up our 2021 GDP forecast. However, the rapid recovery is raising fears of a surge in inflation, which spooked markets this week. We don’t think inflation will stay at 2.0% until 2023, which means it could be 2024 before the Bank of England tightens policy.

14 May 2021

UK Economics Weekly

BoE unlikely to beat the Fed to higher rates

Despite the Bank of England’s more hawkish rhetoric, we doubt it will beat the Fed to higher interest rates. Meanwhile, the news that the Conservatives appear to be performing well in Thursday’s local elections probably won’t have much of an economic impact, not least because local elections aren’t always a good barometer of general elections. Perhaps the most important result from an economic perspective is whether the pro-independence Scottish National Party (SNP) wins a majority, since it would be a clear public mandate for a second Scottish independence referendum.

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.

1 to 8 of 13 publications
See More ↓