Brexit will hold back the recovery

We assume that a slim trade deal will be agreed by the end of this year and that a big step change in the UK-EU relationship will be avoided. But with the chances of a “no extension, no Brexit deal” rising, the risks to the UK’s economic recovery are on the downside. Either way, Brexit is one reason why the economic recovery in the UK is likely to be more sluggish than in many other countries.
Ruth Gregory Senior UK Economist
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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 Data Response

Retail Sales (May)

Rather than suggest the economic recovery is already spluttering, the decline in retail sales in May is probably just a result of the reopening of indoor hospitality in mid-May prompting households to spend less time shopping and more time socialising.

18 June 2021

MPC Watch

No tightening until 2024, and then by unwinding QE first

Even though the Monetary Policy Committee (MPC) will probably acknowledge in the policy announcement on Thursday 24th June that activity and inflation have been stronger than it expected, we don’t think it will suggest it is any closer to tightening policy. While the markets expect that policy will be tightened in late 2022, we don’t think the MPC will get to that stage until 2024. And when it does, we suspect it will unwind some quantitative easing before raising interest rates in 2025.

17 June 2021

More from Ruth Gregory

UK Data Response

Public Finances (Apr.)

April’s public finances figures showed that the government’s financial position isn’t as bad as the Office for Budget Responsibility predicted only two months ago, reinforcing our view that the tax hikes and spending cuts that most fear may be avoided.

25 May 2021

UK Data Response

Consumer Prices (Apr.)

The jump in CPI inflation from 0.7% in March to 1.5% in April (consensus forecast 1.4%) was almost entirely driven by energy price effects, which will only be temporary. We doubt a sustained increase in inflation that would concern the Bank of England will happen until late in 2023.

19 May 2021

UK Data Response

GDP & International Trade (Mar. & Q1)

The burst of growth in March shows that the recovery has been gathering momentum more quickly than we had thought and suggests that the risks to our forecast for the economy to return to its February 2020 level by the end of 2021 are to the upside.

12 May 2021
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