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Recovery stepped up a gear as economy reopened The jump in GDP in April was another sign that consumers are raring to spend as the economy reopens. And all the early indicators suggest that GDP growth was strong in May as well. As such, our forecast of …
11th June 2021
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 …
10th June 2021
It is not just the weather that has hotted up in recent days, so too have the signs of a rapid economic rebound in Q2. The rise in May’s composite PMI to a record high was the latest bit of good news. And while the PMI might overstate the rebound, it is …
4th June 2021
Consumers funding spending by saving less, not borrowing more April’s money and credit data suggests that consumers were still wary about taking on any additional debt. But even if consumers’ willingness to borrow remains limited, they have enough …
2nd June 2021
As anyone who has tried to find a builder recently or even do a DIY project will know, the construction industry is booming. In March output in the sector as a whole was 2.3% above its pre-crisis level. But this masks some large divergences within the …
28th May 2021
Borrowing undershoot likely to continue April’s public finances figures showed that the government’s financial position isn’t as bad as the Office for Budget Responsibility (OBR) predicted only two months ago, reinforcing our view that the tax hikes and …
25th May 2021
In a week when we found out that employment rose in the three months to March (see here ), CPI inflation doubled to 1.5% in April (see here ), retail sales surged in the same month (see here ) and the flash composite PMI jumped to a record high in May …
21st May 2021
Economic recovery shifting through the gears Another rise in the flash composite PMI from 60.7 in April to a record high of 62.0 in May points to the economic recovery shifting through the gears and picking up speed. That suggests the pace of the rises in …
Rocketing retail sales fire up the recovery The surge in retail sales volumes in April shows that households flooded back to the shops once they reopened in the middle of the month and suggests there is even some upside risk to our forecast that the …
Burst of inflation temporary, but upside risks remain 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 …
19th May 2021
On the front foot Today’s data release suggests that the labour market is now on the front foot. Admittedly, the unemployment rate may still rise over the rest of this year. But this will probably be due to people re-joining the labour market rather than …
18th May 2021
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. (See here .) As a result, we have revised up our 2021 GDP forecasts. The 6.5% …
14th May 2021
Shifting into gear even before the COVID-19 restrictions were lifted 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 …
12th May 2021
We’ve been more optimistic than most about the economic outlook since it was announced in November that COVID-19 vaccines were effective. But now that the COVID-19 restrictions are being removed, it looks as though the rebound in activity may be even …
11th May 2021
We suspect that a bout of inflation triggered by the economy reopening will be brief and that a more widespread and sustained rise in inflation that would concern the Monetary Policy Committee (MPC) won’t happen until late in 2023. The pandemic has been …
Supply issues have raised price pressures for producers, which they have begun to pass on. But with doubts around the reliability of survey evidence and the limited pass-through to consumer prices, the surge in pipeline price pressures is, for now, an …
10th May 2021
Upgrades to the Bank of England’s economic forecasts were widely anticipated. But the Monetary Policy Committee (MPC) still managed to surprise us at this week’s policy decision with the size of these upgrades and its hawkish tone. If anything, it sounded …
7th May 2021
While voting today to leave interest rates at +0.10% and the stock of Quantitative Easing (QE) at £895bn, the Monetary Policy Committee (MPC) suggested conditions for tighter policy may be in place in late 2022. But our forecast for subdued inflation over …
6th May 2021
There will be a surge in business insolvencies once the government’s moratoriums expire at the end of June and September. But a strong economic recovery should ensure that fewer businesses go bust than after the Global Financial Crisis (GFC) and fewer …
5th May 2021
Green shoots of a consumer revival March’s money and credit data provides some signs that a consumer revival was underway even before the COVID-19 restrictions were eased in mid-April. But even if consumers’ willingness to borrow remains limited, they …
4th May 2021
Focus on levels, not growth rates People are coming round to the view we have held since November that activity will rebound rapidly as the economy reopens. If anything, the latest evidence, such as the jump in spending on debit and credit cards in the …
30th April 2021
The MPC will probably revise up its economic forecasts But it will reiterate its guidance that rates will remain unchanged for a long time MPC likely to stop QE before the Fed and the ECB Given the better starting point and improving economic outlook, it …
29th April 2021
When taken together, the Bank of England’s forward guidance and its economic forecasts imply that the Bank may not raise interest rates until late in 2023 at the earliest. That would be later than the current pricing in the financial markets of towards …
27th April 2021
Our expectation that the Bank of England will end quantitative easing (QE) sooner than the US Fed and the ECB is unlikely to mean that UK government bond yields rise much further than elsewhere or that the pound is materially stronger. The UK’s success in …
26th April 2021
By far the biggest news story this week was the establishment and swift collapse of the European football Super League. If there were an economics version where success depended on where GDP is at the end of 2022, then the UK may win. The UK started at …
23rd April 2021
Surge in activity as the economy emerges from restrictions The surge in April’s flash composite PMI suggests that the economy has begun to gather momentum. And this is probably a taste of things to come over the next few months as the shackles from the …
Retailers post strong gains even before they open March’s strong rise in retail sales showed that the economy made a fair bit of progress even before non-essential retailers reopened in April. And sales will probably leap further in April. The 5.4% m/m …
Borrowing undershoot in 2020/21 to persist The further rise in public borrowing in March rounded out the worst year for the public finances since 1947. But borrowing was £24.3bn lower than the Office for Budget Responsibility (OBR) predicted just a month …
Starting the climb up to 2.0% The rebound in CPI inflation from 0.4% in February to 0.7% in March is the start of a rise to about 1.5% in the next few months and to above 2.0% by December. But as we doubt inflation will stick above 2.0% until late 2023, …
21st April 2021
Steady as she goes The slight fall in the unemployment rate in February suggests that the government’s job furlough scheme is still insulating the labour market from the worst effects of the pandemic. We still expect the unemployment rate to rise to a …
20th April 2021
The early evidence supports our view that the reopening of non-essential retailers and outdoor drinking/dining venues last Monday marked the start of a rapid rebound in economic activity. The normal time lags mean we won’t have a clear picture of how the …
19th April 2021
Amid the reopening of shops and pubs this week, it was the subtler news that the Monetary Policy Committee’s (MPC) arch-optimist Andy Haldane is leaving the MPC at the end of June that caused a reaction in the markets. Many have assumed that this will …
16th April 2021
Overview – While we think the reopening of the economy and the vaccine rollout will allow GDP to return to its pre-pandemic level a bit earlier than most forecasters, the big difference between us and the consensus is that we don’t think the pandemic will …
15th April 2021
The climb out of the latest COVID-19 hole begins Given there was no change in the lockdown restrictions in February, GDP was never going to shoot back up. But the small rise does suggest that January was probably the low point of the year. We think that …
13th April 2021
Despite the chill in the air and the risk of a setback to the vaccination rollout due to this week’s recommendation by the MHRA that under 30s should be given a COVID-19 vaccine other than the AstraZeneca one, the economy appears to have begun April with …
9th April 2021
The upward revision to GDP in the second half of 2020 means the economy does not have quite as far to recover from the COVID-19 crisis. But it doesn’t change the big picture that GDP will probably get back to its pre-crisis level by early 2022. (See here …
1st April 2021
We’ve assumed households just go back to saving the same share of their income as they did before the crisis. That is enough to drive a rapid economic recovery. The upside risk is if households go further and spend some of their stock of savings. Indeed, …
31st March 2021
High saving rate paves the way for rapid rebound in 2021 The upward revision to GDP in the second half of 2020 means the economy does not have quite as far to recover from the COVID-19 crisis. And Q4’s high saving rate leaves plenty of scope for a rapid …
Households still saving, small businesses still borrowing The COVID-19 lockdown pattern of households paying back credit and investing in property but small businesses loading up on debt continued in February. We doubt much changed in March, but this …
29th March 2021
Despite the good news on economic activity, there have been few signs that this is igniting inflation just yet. So while we think the rally in 10-year gilt yields has further to go, we doubt yields will rise far. While the risk of an interruption to the …
26th March 2021
Third COVID-19 lockdown capping the extent of the rebound The fairly modest rise in retail sales volumes in February affirmed that the third COVID-19 lockdown has been tough for retailers, keeping sales suppressed following the plunge in January. But that …
PMIs rise as some businesses prepare to reopen The rise in the IHS Markit/CIPS composite activity PMI in March suggests that the economy has started to pick up. And once the COVID-19 shackles start to be released next month, activity will probably rebound …
24th March 2021
Drag from lockdown won’t last The drag on CPI inflation in February from the COVID-19 lockdown will delay the rebound in inflation to 2.0% and perhaps prompt the markets to reconsider their view that interest rates will rise next year. The fall in CPI …
Our forecast that the Bank of England will keep interest rates at +0.10% for a few more years and that, as a result, inflation will rise above the 2% target for a prolonged period is consistent with a further steepening in the gilt yield curve. As a …
23rd March 2021
Continuing to hold up well The drop in the unemployment rate from 5.1% in December to 5.0% in January highlights once again the extent to which the government’s job furlough scheme has protected jobs during the pandemic. We still expect the unemployment …
The economic recovery from the COVID-19 crisis may not push CPI inflation above 2.0% for a prolonged period until 2023, although there is a risk that it happens sooner. And further ahead, the government’s desire to use fiscal policy to achieve its …
22nd March 2021
At first glance the further rise in 10-year gilt yields to a 15-month high of 0.82% this week seems odd when on Thursday the Bank of England’s Monetary Policy Committee (MPC) showed no signs of moving closer to raising interest rates. Admittedly, the MPC …
19th March 2021
Borrowing set to end the financial year on the up February’s public finances figures showed that borrowing may come in a little below the OBR’s 2020/21 forecast of £355bn. But if we are right in thinking the economic recovery will be faster and fuller …
The Monetary Policy Committee (MPC) did not follow in the ECB’s footsteps by stepping up the pace of its QE purchases. Instead, it echoed the message of the Fed by emphasising that rate hikes are still a long way away. This suggests that rates won’t rise …
18th March 2021
Extensions to many emergency support measures in the Budget, combined with the lockdown easing roadmap, leaves us with a clearer steer on the impact of the eventual withdrawal of government support. As the economy follows the route out of lockdown, it …
16th March 2021
