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The resignation of Sajid Javid as Chancellor on Thursday and the promotion of Rishi Sunak raises the chances that a relaxation of the fiscal rules allows government policy to boost the economy by more than we expect over the next few years. (See here .) …
14th February 2020
We had already expected something big on fiscal policy in the Budget. But the change in Chancellor increases the chances that new, less restrictive fiscal rules are announced, and that government policy boosts the economy by more over the next few years …
This Update was originally sent to clients as a Rapid Response immediately after the announcement that Sajid Javid was being replaced as Chancellor by Rishi Sunak at 12pm on 13 th February 2020. The unexpected resignation of Sajid Javid as Chancellor and …
13th February 2020
Stagnation in Q4, but Q1 will be better While the first estimate of Q4 GDP showed that the economy stagnated at the end of last year, this is old news and less important than the timelier data that suggests the economy has since turned a corner. The GDP …
11th February 2020
This week brought the clearest sign yet that the economy has turned a corner, with January’s all-sector activity PMI consistent with a 0.3% q/q expansion in GDP in Q1, up from a probable 0.1% decline in Q4. (See here .) Admittedly, with the moves in the …
7th February 2020
Signs that the economy has turned a corner support our view that interest rates won’t be cut from 0.75% this year. After all, the activity PMIs are no longer in the territory where rates have been cut by 25 basis points before. (See Chart 1.) And they …
6th February 2020
It’s possible that consumer spending stagnated or even fell outright in Q4. But this is not too worrying as stronger growth in incomes, a fall in uncertainty and a rise in confidence should lead to a rebound in consumer spending this year. Consumer …
5th February 2020
Survey reaffirms post-election rebound January’s all-sector PMI provides the clearest sign yet that the economy has turned a corner and supports our view that the next move in interest rates may actually be up, albeit not until 2021. The upward revision …
Much depends on if and when the outbreak of coronavirus in China is brought under control. But as it stands at present, the effects on the UK economy have probably been negligible. Our China Economics service is the place to look for analysis of the …
3rd February 2020
We think that the coming fiscal stimulus will raise annual GDP growth by about 0.6ppts this year and 0.25ppts in 2021. This is part of the reason why we expect GDP growth to beat the consensus forecast by rising to 1.8% in 2021 and helps to explain our …
Our interest rate call clears the first hurdle While some may raise a glass to the UK leaving the EU tonight, we will be toasting our call that interest rates would not be cut from 0.75%. (See here .) But our view that rates won’t be cut at all this year …
31st January 2020
Even when the UK leaves the EU tonight, the shape of its future relationship with the EU is still very uncertain. We suspect it will eventually have a more distant “Canada, plus, plus” type relationship with the EU. While that will probably have a …
The MPC kept interest rates on hold at 0.75% today but left the door open to a rate cut in the coming months. Nonetheless, with the economy turning a corner and a big fiscal stimulus approaching, we suspect the next move in interest rates will be up not …
30th January 2020
Further signs the economy has turned a corner The European Commission’s Economic Sentiment Indicator (ESI) confirmed the message from the flash PMIs last week that sentiment in the services sector improved markedly after the election, but that the …
Overview – We think the economy has turned a corner and that GDP growth will beat the consensus forecast by accelerating from 1.0% this year to 1.8% next year. Of course, the lingering uncertainty over the UK’s future relationship with the EU will hold …
28th January 2020
There’s been a few U-turns this week with the most striking happening in the markets expectations for interest rates. In early January, the markets were pricing in just a 5% chance of interest rates being cut from 0.75% to 0.50% at next Thursday’s …
24th January 2020
January’s decision whether to cut rates is very close We think that the MPC will keep rates on hold as the economy appears to have turned a corner We expect the next move in interest rates to be up rather than down, albeit not until 2021 January’s …
Turnaround in the economy will probably prevent a rate cut The large rebound in January’s flash activity PMIs will probably be enough to prevent the Monetary Policy Committee from cutting interest rates at next Thursday’s meeting. After all, it’s the …
As the negotiations over the UK’s new relationship with the EU will be arduous and long, business investment probably won’t rise much this year as firms will worry about the risk of there being something similar to a no deal on 31 st December 2020. But if …
23rd January 2020
Less chance of a rate cut, but looser fiscal policy still on the way The rebound in the main balances of the CBI Industrial Trends Survey in January offers further evidence that sentiment has taken an upward turn after the general election. This should …
22nd January 2020
We suspect that interest rates will neither go up nor down this year! But the markets may be caught out further ahead if, as we expect, a fiscal stimulus and easing in Brexit uncertainty results in interest rates rising above their current rate of 0.75% …
21st January 2020
Solid employment may nudge the MPC away from rate cuts The larger-than-expected rise in employment in November suggests the labour market has turned a corner after the weakness in Q3. That could help to convince the Monetary Policy Committee to hold off …
A flurry of weak data this week has sent money markets into a tailspin. But we suspect that the MPC will just about look past the Brexit and election related distortions and will probably hold off cutting interest rates. At the start of the year the …
17th January 2020
Shoppers shun Christmas spending December’s outright fall in retail sales, despite a boost from the lateness of Black Friday, does not bode well for GDP growth in December and could nudge the MPC yet closer still to cutting rates at the end of the month. …
We have argued for some time that a near-term interest rate cut is a strong possibility. The market has now come around to this view. While the decision is a toss-up, at least until we see the next batch of data, our hunch remains that interest rates will …
15th January 2020
Fall in inflation pushes the MPC closer to a rate cut December’s consumer price figures showed that after a brief pause in November, inflation is back on a downward trend. This is likely to push the Monetary Policy Committee even closer towards a rate …
GDP data make rate cut a close call The sharp decline in GDP in November is partly due to some activity being brought forward before the 31 st October Brexit deadline. Nonetheless it leaves the economy on course to stagnate or contract by 0.1% q/q in Q4 …
13th January 2020
There is some early evidence that a “Boris bounce” after the election victory might be in progress, but the size and duration of any upswing will depend on how well the next stage of the Brexit negotiations go. December’s final IHS Markit/CIPS services …
10th January 2020
PMIs suggest post-election bounce is in the works Clearly Q4 was very weak, but the decisive result of the General Election appears to have given the services PMI a bit of a boost. That jump in confidence may start to come through in other data in Q1, …
6th January 2020
The turn of the decade has not caused the main headwind to the economy to blow over. The passage of the Withdrawal Agreement Bill through Parliament means that Brexit will officially happen on the 31 st January when the UK will enter a transition period …
3rd January 2020
This Update was originally sent to clients as a Rapid Response immediately after the vote in Parliament on 20 th December on Boris Johnson’s Brexit deal. The ease at which Johnson’s Brexit divorce bill passed through Parliament today illustrates the power …
20th December 2019
If the markets (and ourselves!) had any thoughts of winding down in the run-up to Christmas they didn’t last long as there were important enough events this week for the pound to have its worst week of the year. The fall from $1.35 to $1.30 was not an …
The confirmation that Andrew Bailey will take over from Mark Carney as Governor of the Bank of England on 16 th March 2020 doesn’t change the outlook for monetary policy. But Bailey will face many challenges during his eight-year term, such as navigating …
GDP revised up in Q3 but economy still lacking momentum Christmas has come early with the ONS revising up GDP growth in Q3 from 0.3% to 0.4% in its annual data deluge before the festive break. But the festive cheer will probably be short-lived seeing as …
Whatever the Brexit drama delivers in 2020, it seems that uncertainty will continue to hold back GDP growth and keep a lid on the pound, interest rates and gilt yields. But looser fiscal policy should generate at least some improvement in GDP growth and …
19th December 2019
The tone of December’s Monetary Policy Committee (MPC) statement and minutes was barely changed from November, indicating that the MPC is content to sit on its hands for the time being. As a result, we remain comfortable with our view that interest rates …
Not as bad as they look At face value, November’s further drop in retail sales volumes is pretty concerning. But the picture is clouded by the late timing of Black Friday this year, which probably means November’s figures look worse than they really are …
Steady inflation may persuade the MPC to remain on hold on Thursday November’s inflation figures will probably mean that the Monetary Policy Committee (MPC) will be content to sit on its hands at its meeting tomorrow. But unless the tone of the economic …
18th December 2019
Stabilisation in employment may keep the MPC away from rate cuts The larger-than-expected rise in employment in October suggests the labour market has stabilised, so the Monetary Policy Committee will probably hold off cutting interest rates at Thursday’s …
17th December 2019
Weak Q4 confirmed but green shoots may soon emerge The weak flash PMIs for the UK are another piece of evidence that suggests growth flat-lined in Q4. And if there isn’t a pick-up in the surveys in the next few months, then the MPC may respond by cutting …
16th December 2019
While the election result has changed sentiment in the markets and Westminster, as far as the economy is concerned the most crucial decisions about the UK’s future trading relationship with Europe and the size of any fiscal stimulus are still to come. …
13th December 2019
Vlieghe might join Saunders and Haskel in voting for a cut But the election result and prospect of a Brexit deal may mean the majority is content to wait Chances of a rate cut arguably higher in January If the Monetary Policy Committee (MPC) wanted to cut …
While the majority secured by the Conservatives in the election clears the path to a Brexit deal being passed by 31 st January and fiscal policy being loosened in a Budget in February, the resulting boost to the economy will be restrained by the risk that …
This Update was originally sent to clients as a Rapid Response immediately after the general election exit poll was published at 10pm on 12 th December 2019. If the exit poll’s estimation that the Conservatives secured a majority of 86 seats in today’s …
12th December 2019
Our election preview contains detailed analysis of the potential impact of the election on the economy and markets. Here we focus on what to watch on Thursday night to get a sense of the result and its implications. When will we know who’s won? The first …
11th December 2019
As the markets have priced in a high chance of this Thursday’s election delivering a Conservative majority there is little immediate upside left for the pound or gilt yields, although equities might still get a boost. There is, however, lots of scope for …
10th December 2019
Economy not going anywhere in Q4 The stagnation in GDP in October is unlikely to influence many people’s vote in Thursday’s election, but it could prompt some more MPC members to vote for lower interest rates in the coming months. The 0.0% m/m outcome for …
In view of the wider interest, this Global Markets Update is made available to clients of the UK Markets service as well. A surprise win for Labour at Thursday’s election could be a major shock to UK equity markets. There are few recent examples of an …
6th December 2019
The public could give economists an early Christmas present at next Thursday’s election. Either a Conservative majority (most likely) or a Labour-led government (still plausible) would make what will happen with Brexit a bit clearer and allow us to switch …
While employment tends to lag changes in economic activity, the labour market figures will be crucial in leading the MPC’s decision about whether to cut interest rates or not in the coming months, even if there is a clear Conservative election victory and …
