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Philip “the fiscal hawk” Hammond was surprisingly generous in the Budget on Monday, spending his entire windfall from the downward revision to the OBR’s borrowing forecast. This means that rather than acting as a small headwind on growth next year, fiscal …
2nd November 2018
The fiscal loosening announced in the Autumn Budget has prompted us to raise our forecasts for GDP growth and interest rates. In our base case, which assumes a Brexit deal is secured, we now expect GDP to rise by 2.2% next year and by 2.0% in 2020 (up …
1st November 2018
The “Super Thursday” releases from the Bank of England support our view that the Monetary Policy Committee (MPC) will raise interest rates more quickly than markets expect, if a Brexit deal is struck. … MPC hints rates will rise quicker than markets …
The fall in the manufacturing PMI to its lowest level since immediately after the EU referendum suggests that the sector will drag on growth in Q4 as Brexit uncertainty weighs on investment and export orders. … UK Markit/CIPS Manufacturing PMI …
The weak tone of October’s GfK/NOP Consumer Confidence survey is not all that worrying, given that it appears to largely reflect seasonal factors. The bigger picture is that, so long as a Brexit deal is secured, the conditions for a continued recovery in …
31st October 2018
Things are finally looking up for consumers. Not only did yesterday’s Budget provide a welcome boost to households’ finances, but a recovery in real pay growth now appears to be taking root. … Autumn Budget improves consumer …
30th October 2018
As expected, the Office for Budget Responsibility (OBR) gave the Chancellor a helping hand in the Autumn Budget, allowing him to deliver a number of expensive spending pledges, while still managing to reduce headline borrowing from 2019-20 onwards and …
29th October 2018
This checklist is intended to help clients keep track of the key official forecasts and measures announced during the Chancellor’s Autumn Budget speech at 3.30pm Monday 29th October, and to provide some instant context. … UK Autumn Budget 2018 …
September’s household borrowing figures provided further signs that consumers are becoming more wary about loading up on unsecured debt. But households remain upbeat about their financial position so any slowdown should not be too severe. In any case, the …
Although Theresa May succeeded in clinging onto the premiership last week, the possibility of a leadership contest remains a distinct and worrying prospect both for the Brexit negotiations and consequently the economy. Here we address seven key questions …
The Office for Budget Responsibility (OBR) will hand the Chancellor, Philip Hammond, a get-out-of-jail-free card by slashing its forecast for the deficit this year in Monday’s Budget. This will allow Hammond to deliver the pledged increase health spending …
26th October 2018
This Tax Ready Reckoner illustrates the impact of various tax changes on the public finances, allowing the magnitude of any policy changes announced in the Chancellor’s Budget speech on Monday to be gauged immediately. We will be sending a detailed …
The chances of an interest rate rise at the Monetary Policy Committee’s (MPC) meeting from 0.75% on 1st November are pretty slim. We doubt the MPC will move again until the Brexit fog has lifted. … MPC to wait for Brexit fog to …
25th October 2018
The greater-than-expected improvement in the public finances over the past few months, should give the Chancellor a windfall to spend at next week’s Budget. But we suspect that the Chancellor will probably only unveil a small fiscal giveaway of £3bn next …
23rd October 2018
We think that the combination of investors already being heavily net short on sterling, a relatively small increase in the odds of a “no deal” Brexit and the fact that sterling has already fallen significantly probably explains the recent resilience of …
22nd October 2018
The October European Council meeting – long billed as the moment when a Brexit deal would be done and dusted – has come and gone. And the UK and EU positions look as irreconcilable as ever. While we have not changed the assumption that underpins our …
19th October 2018
Given lower-than-expected borrowing in the first five months of the fiscal year to August, the OBR is likely to revise down its forecast for the deficit this year alongside the budget. But lower-than-expected borrowing in September is likely to leave even …
High-street spending put in a strong performance over Q3 as a whole, posting another chunky 1%-plus gain. Admittedly, retail sales have not been a particularly good barometer of overall consumer spending recently. Sales rose by a quarterly 2.0% in Q2, but …
18th October 2018
Although September’s retail sales figures were weaker than expected, sales still rose strongly over Q3 as a whole. And with sustained rises in real pay now in prospect, this should pave the way for a gradual recovery in consumer spending growth in the …
The larger-than-expected fall in CPI inflation in September takes the pressure off the Monetary Policy Committee to act before it knows the outcome of the Brexit negotiations. … Consumer Prices & Producer Prices …
17th October 2018
We think that the drop in employment in the three months to August is more likely to be a blip rather than the beginning of a sustained decline in jobs growth. What’s more, pay growth continued to accelerate, with underlying pay growth reaching its …
16th October 2018
Rising real wage growth should pave the way for a consumer recovery next year. At the same time, the lifting of Brexit-related uncertainty will set the stage for a sharp rebound in investment spending. This should allow GDP growth to quicken from a …
15th October 2018
We are gradually getting a clearer idea of how GDP growth in the third quarter shaped up. And so far, it is looking like it will be a pretty good number. But we doubt that the recent improvement will last. Indeed, a number of temporary factors have …
12th October 2018
The strength of the latest data has led us to revise our forecast for growth in Q3 up from 0.5% to 0.6%, which would make it the strongest quarter since 2016. Nonetheless, annual GDP growth will probably still come in at 1.3% this year, the weakest since …
10th October 2018
The impact of a no deal Brexit on the economy would depend on what sort of no deal it was, but there would be at least some negative effect in the short term. If the UK left the EU on bad terms, the damage could be substantial. But this would be a one-off …
8th October 2018
The latest evidence points to GDP growth picking up from 0.4% in Q2 to 0.5% in Q3. That would make it the strongest quarter since the end of 2016. Even so, the economy would still be on track for a poor performance this year overall. Our forecast is for …
5th October 2018
The Markit/CIPS all-sector output PMI was more or less unchanged in Q3 compared to Q2, consistent with GDP growth remaining steady at 0.4% q/q. However, we think that growth was a little bit stronger than this. The official data showed that rolling …
4th October 2018
The drop back in September’s Markit/CIPS report on services was a little disappointing but a bit of a fall was expected after a large jump in August. The bigger picture is that growth in the services sector is holding up pretty well. … Markit/CIPS …
3rd October 2018
The rebound in the manufacturing PMI in September suggests that the sector will no longer drag on growth in Q3. What’s more, the export orders balance recovered much of last month’s sharp fall, suggesting that Brexit concerns are not weighing on external …
1st October 2018
August’s household borrowing figures provided further signs that consumers’ appetite for unsecured borrowing is waning. But the slowdown is arguably a welcome development since it eases concerns that unsustainable rises in borrowing will lead to a sharper …
The latest Quarterly National Accounts showed that real household incomes and savings have recovered a little from their recent weakness. And with a further improvement in prospect, that should put consumer spending growth on a more sustainable footing. … …
28th September 2018
The Labour Party announced a new policy at their conference this week that would see companies transfer some of their shares to employees. While this policy in isolation might not be too damaging for business, it comes on top of a swathe of others that …
The GDP figures were pretty disappointing and with plenty of downside risks to the outlook, we doubt the Bank of England will be in any hurry to raise rates again soon. … GDP: Quarterly National Accounts …
Some of the drop in September’s GfK/NOP consumer confidence survey can be put down to worries over Brexit. But provided a deal is stuck, we do not think this marks the start of a lasting trend and remain confident that we will soon see a gradual recovery …
There are now only six months left to negotiate the deal under which the UK will leave the EU and move into a transition period. This Update lays out five key questions and answers on what still needs to be done, and the pitfalls that could lead to a …
27th September 2018
We estimate that Brexit uncertainty has knocked about 0.5 percentage points off GDP growth in the two years since the referendum through its impact on investment. Provided a deal is struck as we expect, the release of pent up investment could provide a …
24th September 2018
Theresa May’s combative comments in a surprise press conference earlier today indicated that the chances of a no deal scenario have risen, causing the largest one-day fall in the pound in eleven months. Indeed, the two sides remain far apart, meaning that …
21st September 2018
The unexpected rise in inflation in August came as a bit of a nasty surprise. But we still think that the Monetary Policy Committee (MPC) can afford to sit tight until Brexit uncertainty has been resolved, before raising interest rates again. If the …
Retail sales volumes rose in August despite the boost to sales from July’s warm weather and the World Cup unwinding. Indeed, while food sales fell in August, this was more than made up for by the largest monthly jump in sales of household goods since May …
Borrowing was higher than expected in August, marking the end of a run of strong figures. Despite the rise in borrowing in August, it is still on track to come in below the Office for Budget Responsibility’s forecast over the fiscal year as a whole. … …
Despite inflation ticking up in August, prolonging the squeeze on real incomes, retail sales volumes increased. … Retail Sales (Aug.) …
20th September 2018
The unexpected rise in CPI inflation came as a bit of a nasty surprise, but it does not alter our view that inflation will be back at the 2% target by this time next year. … Consumer Prices & Producer Prices …
19th September 2018
While Michel Barnier, the EU’s Chief Negotiator, raised hopes that a Brexit deal will be secured soon, we suspect that an agreement is still some way off. This feeds into our forecast that sterling will pull back to $1.25 and €1.09 by end-2018. This is …
14th September 2018
The Monetary Policy Committee (MPC) does not appear to be in a rush to raise interest rates again soon. Indeed, our assumption that a Brexit deal will be struck at the eleventh hour will probably prevent the MPC from lifting rates again until next year. … …
13th September 2018
Pay growth ended its recent soft patch in emphatic style in July, with underlying pay growth reaching its joint-highest pace since 2008. This suggests that competition for workers is finally starting to provide greater support to wages. … Labour Market …
11th September 2018
The worst bit of austerity is behind us, but it is by no means over. There are powerful reasons for taking further action to reduce the public sector debt burden. So we think that the Government will fend off pressures to loosen the public sector purse …
10th September 2018
The stronger-than-expected GDP figures for July suggest that the economy continued to shrug off Brexit-related uncertainty at the start of Q3. That gives us confidence in our forecast that the economy will grow at a steady pace for the remainder of the …
Following a weak run of data, evidence that the services sector continued to grow at a robust pace in August provided some reassurance that economic growth will maintain a steady pace for the remainder of the year, in line with our forecast. Meanwhile, …
7th September 2018
The Monetary Policy Committee (MPC) is unlikely to increase interest rates at its meeting on 13th September so soon after the last rise. In fact, given our assumption that a Brexit deal will only be struck at the eleventh hour, we doubt the MPC will move …
6th September 2018
The survey evidence suggests that the economy has maintained its momentum in Q3 thus far. The improvement in the Markit/CIPS services survey in August came as a bit of a relief after the recent run of poor economic data. The increase in the services PMI …
