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The pound has performed better than all other G10 currencies so far in 2021 (see Chart 1), rising from $1.36 at the start of January to almost a three-year high of $1.41 now. We expect the strength of sterling against the US dollar to continue and have …
24th February 2021
Earnings growth not as strong as it looks The rise in the unemployment rate in December is another step up on the climb towards the 6.5% peak we expect by the end of the year. But if the government follows the roadmap that it laid out on Monday and …
23rd February 2021
We think that the government’s roadmap for easing England’s current COVID-19 lockdown will direct the economy back to its pre-pandemic size by Q1 2022. With the Chancellor and the Bank of England unlikely to knock the economy off course with tighter …
22nd February 2021
The 8.2% m/m fall in retail sales confirmed that January’s lockdown hit retailers much harder than November’s lockdown, when sales fell by “only” 4.0% m/m. But it still wasn’t anywhere near as large as the 18.0% m/m drop in the first lockdown in April …
19th February 2021
GDP unlikely to bounce back much from January’s lockdown decline The rise in the IHS Markit/CIPS composite activity PMI in February suggests that the economy didn’t deteriorate further after the probable fall in GDP in January triggered by the current …
Lockdown adds to retailers’ January blues The sharp fall in retail sales in January suggests that the third COVID-19 lockdown hit the economy harder than the second lockdown in November. Retailers may have to endure a few more months of depressed sales, …
Third lockdown leads to highest January borrowing figure on record January’s poor borrowing figures are likely to set the tone for the next few months as the third COVID-19 lockdown keeps many businesses closed. But the Chancellor should resist the urge …
Brace for a jump to 2% in April The rise in CPI inflation from +0.6% in December to +0.7% in January (consensus forecast +0.6%) was trivial given that leaps to around +2.0% in April and to around +2.5% by the end of the year appear to be baked in the …
17th February 2021
The possibility that international travel restrictions could remain in place this summer implies that the rapid vaccine rollout won’t be enough to ensure a swift return to normality for the hard-hit tourism sector. But this is unlikely to put a huge dent …
12th February 2021
Avoiding a technical double-dip recession The media headlines have focused on the record-breaking 9.9% decline in annual GDP in 2020, but t he rise in GDP in Q4, despite the COVID-19 lockdown in November and restrictions in December, is further evidence …
There are fears that, by making the government’s debt servicing costs more vulnerable to short-term rises in interest rates, quantitative easing (QE) is storing up trouble for when Bank Rate rises. However, right from the onset of the scheme, it was clear …
10th February 2021
Even though we don’t expect there to be much, if any, long-term economic scarring from the COVID-19 crisis, a surge in the number of businesses going insolvent, a jump in the long-term unemployment rate or a sustained sharp drop in the number of …
9th February 2021
Our view that the recovery from the COVID-19 pandemic will be quicker and more complete than most forecasters expect suggests that the economic legacy of the crisis may not be a permanently smaller economy but instead higher inflation and bigger public …
8th February 2021
A fortnight ago we highlighted two downside risks to our forecasts that the economy would enjoy a quick and complete recovery from the COVID-19 crisis. (See here .) But the past week has highlighted two upsides, which also caught the attention of the …
5th February 2021
Our forecasts that the Bank of England would not be able to use negative interest until the middle of the year and wouldn’t be willing to speed up the pace of its quantitative easing (QE) proved to be spot on today. And the more optimistic feel of the …
4th February 2021
After having been boosted by stockbuilding ahead of the end of the Brexit transition period on 31 st December, exports and imports were always going to fall in January. But the added drags of COVID-19, the new Brexit customs procedures and the surge in …
3rd February 2021
Easing in the rush for cash The easing in the COVID-19 restrictions meant that businesses did not rush as fast to take on more debt in December. And with households investing in property and strengthening their balance sheets, there is scope for household …
1st February 2021
The labour market has been remarkably strong since the onset of the pandemic. The unemployment rate has only risen from 4.0% in February to 5.0% in November and the 3.6% 3myy rise in earnings in November means that wages were rising at their fastest …
29th January 2021
Bank to emphasise it is willing to provide more support and has the tools to do so But there is a lot of QE already in the pipeline and we doubt it’s ready to use negative rates Our relatively optimistic economic forecasts suggest it won’t need to either …
28th January 2021
Unemployment to continue its slow climb The rise in the unemployment rate in November is another step up on the climb towards the 6.5% peak we expect by the end of the year. But with the rollout of vaccines going well, the jobless rate may be back at its …
26th January 2021
Two developments this week threaten the view we laid out in our recent UK Economic Outlook that the economy will enjoy a quick and complete recovery from the COVID-19 crisis. (See here .) The first are the rumours that the Chancellor is planning to raise …
22nd January 2021
Third lockdown far less damaging than the first January’s flash composite PMI is consistent with our view that the third lockdown, like the second, was much less damaging for the economy than the first lockdown in March/April 2020. But it suggests that …
Budget deficit should shrink without tax rises December’s jump in borrowing is likely to set the tone for the next few months as the third COVID-19 lockdown keeps many businesses closed and will only increase talk of how to pay for the crisis. But the …
Bad January to follow poor December The tiny rise in retail sales in December shows that it wasn’t a very merry Christmas for retailers. And January’s lockdown means it won’t have been a happy start to the new year either. But at least retailers are more …
The possible sharp fall in the population since the start of the pandemic may explain up to 1.8 percentage points of the underperformance of the UK economy last year relative to its peers and, more worryingly, may present a downside risk to our forecast …
21st January 2021
Inflation to temporarily rise above target later this year The rise in CPI inflation from 0.3% in November to 0.6% in December and in the core rate from 1.1% to 1.4% may represent the first step on a climb towards a peak of about 2.5% by the end of the …
20th January 2021
Overview – Our view that the economy will return to its pre-pandemic size in Q1 2022 and that it won’t be permanently smaller due to the pandemic is a more optimistic take than that of most forecasters. It implies that the government doesn’t need to …
19th January 2021
This week’s news on the economic damage caused by the virus and the efforts to fight it have given us some cause for optimism. By 13 th January, 4.4% of the population had received their first COVID-19 vaccination dose. Admittedly, in order to achieve its …
15th January 2021
Economy builds up some immunity to lockdowns The economy has built up a fair bit of immunity to lockdowns, as November’s second COVID-19 lockdown was much less painful for the economy than the first lockdown in March/April of last year. The same is …
We don’t know exactly how long the third English lockdown, which started on 5 th January, will last. Government ministers have talked about schools being closed until mid- or late-February, but the lockdown legislation MPs voted into law on Wednesday has …
8th January 2021
The Bank of England may not be ready to use negative interest rates until H2 2021. And by then, COVID-19 restrictions might be easing and the economy could be growing rapidly. In any case, if the Bank does loosen policy further, we suspect it will use …
7th January 2021
The third lockdown to contain COVID-19 means that the economy will start the year in recession and the recovery will be delayed again. Even so, by expecting the economy to regain its pre-crisis level in Q2 2022 and to avoid major long-term scarring, we …
5th January 2021
Households in a good position to spend, but small businesses struggling November’s money and credit figures highlighted the divergence between households who continued to pay back credit and invest in property, and small businesses who were once again …
4th January 2021
Today’s news that a UK-EU Brexit deal will soon be announced may not boost the financial markets by much more than it already has. But a decent economic recovery from the COVID-19 crisis in the second half of next year may mean that the pound rises from …
24th December 2020
Second lockdown sends borrowing soaring again November’s surge in borrowing is unlikely to be reversed much over the next few months as the ongoing COVID-19 restrictions keep many businesses closed. This will only increase talk of how to pay for the …
22nd December 2020
High savings rate paves the way for solid rebound in 2021 While a double-dip recession is a clear possibility if the Tier 4 COVID-19 restrictions are extended into 2021, Q3’s high saving rate provides optimism that as long as vaccines are effective and …
The new Tier 4 COVID-19 restrictions, which closely resemble November’s lockdown, raise the chances that the economy stagnates, if not contracts, in the first three months of 2021. If the economy is heading for a double-dip, at least the second leg down …
21st December 2020
The sentiment from this passage we published in the first UK Economics Weekly of this year still feels relevant for 2021: “With something like a no deal still possible in December, Brexit uncertainty will prevent 2020 being a good vintage for the …
18th December 2020
Second lockdown has much smaller impact than the first The relatively small drop in retail sales in November indicates that the second COVID-19 lockdown didn’t change households spending behaviour by anywhere near as much as the first. And it suggests …
The positive news on vaccines meant that the Monetary Policy Committee (MPC) didn’t feel the need to loosen policy any further at its December meeting today. And, as long as there is a Brexit deal by 31 st December 2020, we don’t think it will need to …
17th December 2020
