My subscription
My Subscription All Publications

Gov’t needs to step in to confine big hit to GDP to Q2

We now think that the economic effects of the coronavirus will result in GDP falling by around 15% q/q in Q2, that the Bank of England will soon launch £150bn of quantitative easing, and that the government will need to act as a backstop for banks and other sectors to prevent a deeper and longer-lasting recession.
Paul Dales Chief UK Economist
Continue reading

More from UK

UK Economics Weekly

Too soon to conclude inflation won’t become more persistent

It’s too soon to conclude that the weak tone of this week’s news on activity means that inflation won’t become more persistent. Our proprietary measure of underlying/persistent CPI inflation rose to a new record high in May. And the flurry of higher pay settlements across the economy suggests that high inflation is feeding into faster wage growth. This may not necessarily be enough to prompt the Bank of England to start raising interest rates in 50 basis point steps. But we still think that rates will need to rise from 1.25% to 3.00% to tame inflation.

24 June 2022

UK Data Response

Retail Sales (May)

The fall in retail sales in May suggests that the decline in households’ real incomes from surging inflation is starting to hit consumer spending a bit harder. Even so, consumer spending appears to be softening rather than sinking, so we doubt that this will deter the Bank of England from hiking interest rates further.

24 June 2022

UK Data Response

S&P Global/CIPS Flash PMIs (Jun.)

The fact that the composite PMI didn’t fall in June means the economy could be holding up a little better than we and the Bank of England had feared. Beneath the headline numbers, the survey also suggests strong inflationary pressures have not gone away. That supports our view that interest rates will rise from 1.25% now to 3.00% next year, further than the 2.00% peak expected by the consensus of analysts.

23 June 2022

More from Paul Dales

UK Data Response

Consumer Prices (May)

With businesses having raised their prices by more than we expected once they reopened after COVID-19 lockdowns ended, we now think CPI inflation will rise to a peak of 2.9% later this year compared to 2.6% previously. And the further surge in costs earlier in the price pipeline has made us a bit less confident that CPI inflation will drop back below 2.0% next year.

16 June 2021

UK Economics Update

Four-week delay to Freedom Day not a big blow to the economy

A four-week delay to the easing of the final domestic COVID-19 restrictions beyond 21st June is unlikely to prevent the economy from climbing back to its pre-pandemic size by the autumn. And although there is a clear risk that “Freedom Day” will be delayed again, as long as any further delays can be measured in weeks rather than months COVID-19 probably won’t leave a big scar on the size of the economy.

14 June 2021

UK Economics Chart Book

Inflation risks rising

The risks to our forecast that CPI inflation will rise from 1.5% in April to a peak of 2.6% in November before dropping back in 2022 are increasingly on the upside. Rises in shipping costs and global agricultural commodity prices as well as shortages of semiconductors and labour could all conspire to push CPI inflation higher this year and keep it above 2% next year. At the moment, though, we think that the lingering effects of last year’s collapse in output will prompt many firms to absorb the bulk of higher costs in their margins and to limit pay rather than pass them on to consumers via much higher prices. This “spare capacity” effect explains why we think core inflation will stay below 2% until late in 2023.

10 June 2021
↑ Back to top