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UK Data Response

S&P Global/CIPS Flash PMIs (May)

The flash PMI survey for May suggests that economic growth has slowed to a crawl and that the risk of a recession has not gone away. Even so, weakness in the economy doesn’t seem to be filtering into an easing of price pressures. As a result, we think that interest rates still have much further to rise, from 1.00% now to 3.00% in 2023. 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.

24 May 2022

UK Data Response

Public Finances (Apr.)

The economic wind that has recently been blowing the public finances to undershoot forecasts adds more pressure on the Chancellor to launch in the coming weeks a big package of measures to help households cope with the cost of living crisis. But as the economic wind is already showing signs of becoming less favourable for the public finances, we think the support package is more likely to be small and targeted. 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.

24 May 2022

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

UK Data Response

Consumer Prices (Apr.)

If the rise in CPI inflation from 7.0% to a 40-year high of 9.0% in April wasn’t bad enough, inflation will probably rise further to 10% in October and will then fall back to the 2% target only slowly. That’s why we think the Bank of England has more work to do and will raise interest rates from 1.00% now to 3.00%.

18 May 2022

UK Economics Update

Can the economy handle interest rates of 3%?

We estimate that a rise in Bank Rate from 0.10% last November to a peak of 3.00% would mean that GDP is around 2.0% lower than if Bank Rate had stayed at 0.10%. That is a smaller drag than the Bank of England has incorporated into its forecasts. We do not expect this to generate a recession, but the risk is very real. The danger is that rising interest rates and falling house prices prompt a negative feedback loop that results in a bigger hit to GDP than we expect.

17 May 2022

UK Data Response

Labour Market (Mar./Apr.)

Even though the economy contracted in March and may be on the brink of a recession, jobs growth strengthened, the unemployment rate fell to a 47-year low of 3.7% and wage growth accelerated. This supports our view that the Bank of England will have to raise interest rates further than widely expected, from 1.00% now perhaps all the way to 3.00% next year.

17 May 2022

UK Economics Update

Next Brexit bust-up risks adding to inflation

The UK government’s plan to use domestic legislation to overwrite parts of the Brexit Northern Ireland Protocol risks creating another headwind for the economy and exacerbating price pressures at a time when CPI inflation is on the cusp of rising to a 40-year high of 9%.

16 May 2022

UK Economics Weekly

Will the MPC still raise interest rates if there’s a recession?

It looks as though the economy is halfway towards a recession. Although the Monetary Policy Committee has never raised interest rates during a recession before (the last time it happened was in 1975), our forecast that next week’s CPI release will reveal that inflation jumped to a 40-year high of 9.2% in April means that the MPC may have to break new ground.

13 May 2022

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