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The ECB’s second long-term refinancing operation (LTRO) conducted this morning should alleviate the risk of a renewed credit crunch, not just in the euro-zone, but in the UK too. However, UK bank funding markets still look strained and we continue to …
29th February 2012
Mortgage approvals are being driven higher by the looming end of the first-time buyer stamp duty holiday and are likely to fall back sharply come April. Thereafter, rising unemployment and falling consumer confidence will conspire to keep mortgage …
Since the financial crisis began, the UK has been the worst performer of all the major advanced economies. And the factors that explain the underperformance, together with new shocks that look set to hit the economy, suggest that the UK will continue to …
28th February 2012
The rise in consumer spending in the final quarter of last year added to other evidence that the consumer recovery is gaining momentum. Falling inflation should continue to alleviate the squeeze on real incomes, but we would be wary of concluding that …
27th February 2012
As soon as last week’s figures showed that public sector borrowing is likely to undershoot the OBR’s forecast this year, the Chancellor was inundated with calls for what he should do with this windfall. However, the Chancellor is unlikely to respond with …
The second estimate of Q4 GDP confirmed that the economy finished 2011 on a weak footing. Admittedly, the drop reflected a temporary dip in the pace of stockbuilding by firms. There are signs too that growth has picked up at the start of this year. …
24th February 2012
Today’s data from the FSA showed that banks are picking up the pace at which they are compensating consumers for mis-sold Payment Protection Insurance (PPI). While the compensation will provide a welcome boost to some individual households’ finances, we …
22nd February 2012
The minutes of February’s MPC meeting were slightly more dovish than last week’s Inflation Report , leaving a further extension of quantitative easing (QE) looking a bit more likely than before. … MPC Minutes …
January’s public finance figures showed that government borrowing remains on track to undershoot the OBR’s forecast for this year, meaning that at next month’s Budget, the Chancellor is likely to claim that Plan A is still working. … Public Finances …
21st February 2012
Mervyn King’s forecast of a “zig-zag” year grabbed the headlines after last week’s Inflation Report, with the Governor warning that June’s extra bank holiday would lead to a bumpy path for output this year. But the big picture is that the MPC still …
20th February 2012
There have been some signs of a pick-up in consumer spending. But some measures are more upbeat than others. And more generally, consumers are still facing a set of tough conditions. … Falling inflation offers some …
17th February 2012
On the face of it, January’s official retail sales figures suggest that a recovery in high street spending is gaining momentum. But there are reasons to doubt the strength of the official data. In any case, the consumer spending outlook remains bleak. … …
Most of the UK regions shared in the improvement in output growth suggested by the national and global activity surveys in January. But labour and housing markets in the North are continuing to fare much worse than those in the South. … Regional Monitor …
16th February 2012
The recent rise in oil prices has sparked fears that CPI inflation will not fall as fast as hoped. However, the focus on oil prices ignores the fact that other commodity prices have risen by less, if at all. … Euro-zone recession to hit UK exports …
15th February 2012
On the face of it, February’s Bank of England Inflation Report suggested that the MPC is unlikely to extend its asset purchase programme much further. But we think that inflation will fall further than the MPC expects, necessitating further stimulus. … …
The labour market data continue to paint a bit of a mixed picture, but the key point is that unemployment is still rising and is likely to increase much further in response to the sluggish economic recovery. … Labour Market Data …
14th February 2012
January’s drop in inflation took it another step closer to the sub-2% rates that we expect to see by the end of the year. Indeed, this time next year, Mervyn King could be getting his pen out to write a letter to explain why inflation is more than 1% …
The squeeze on real pay is finally easing. Unfortunately, this is unlikely to prevent a further drop in real consumer spending this year. However, it should lay the foundation for a recovery to start in 2013. … Squeeze on real pay to ease this …
13th February 2012
The major UK banks have more or less met the Project Merlin lending targets set by the Government. But these targets were fairly meaningless in the first place and there are plenty of reasons to expect credit growth to remain a constraint on the economic …
Some interpreted the Committee’s decision to increase QE by “only” £50bn last week as a sign that it is close to thinking that it has done enough. However, we think that next week’s Inflation Report will leave the door open to further asset purchases. … …
Stronger monthly rises in both input and output prices in January did not prevent further falls in the annual inflation rates. And while February may see another sharp monthly rise in input prices, underlying inflationary pressures in the industrial …
10th February 2012
The MPC’s decision to increase its asset purchase programme by another £50bn was as expected and confirmed that the recent improvement in the economic data has not alleviated the need for policymakers to give further support to the economy. We still think …
9th February 2012
On the face of it, December’s industrial production and trade figures added to the recent run of stronger data on the UK economy. But a closer look at the numbers suggests that the improvement is unlikely to be maintained in the months ahead. … …
November’s Inflation Report forecasts suggested that significantly more QE is needed and we don’t think that the recent improvement in the economic data has significantly altered that picture. … Better data have not alleviated the need for more …
6th February 2012
Last week’s Bank of England figures showed that bank lending to firms and households fell in December, while conditions in bank funding markets have continued to get worse. In contrast, LIBOR spreads in the euro-zone have been narrowing – suggesting that …
The improvement in January’s CIPS/Markit report on services provided further evidence that the economic recovery is getting back on track after Q4’s contraction in GDP. … CIPS/Markit Report on Services …
3rd February 2012
2nd February 2012
December’s chunky fall in CPI inflation from 4.8% to 4.2% is likely to be followed by further falls that take inflation to 1% or below by the end of the year. … Inflation squeeze starts to …
1st February 2012
January’s CIPS report on manufacturing added to evidence that the industrial recovery got back on track at the start of this year. Nonetheless, the survey also brought signs that the pick-up in output growth will not last. … CIPS/Markit Report on …
It is still too early to tell whether the latest fall in the Nationwide house price index is confirmation of a renewed downward trend. However, given that the economy is already contracting, unemployment is rising and consumer confidence remains low, it …
With the economy now contracting again and further job losses to come, it was perhaps not surprising that the recovery in mortgage approvals seems to have run out of steam. … Mortgage Lending …
31st January 2012
The continued weakness of broad money and lending growth bolsters the case for the MPC to announce another round of quantitative easing (QE) at February’s meeting. … Monetary Indicators Monitor …
During the financial crisis, many countries cut official interest rates to below the 0.5% level seen in the UK. If they can reach this level elsewhere, we do not see why they cannot do so in the UK. Accordingly, a further cut in Bank rate remains one …
30th January 2012
High inflation, rather than ‘temporary factors’ or the euro-zone debt crisis, seems to have been the key driver of the economy’s shift from stagnation to contraction in the fourth quarter. While at this early stage we would not want to rule out the …
Q4’s UK GDP figures confirmed fears that the economy is already contracting again. We won’t know for sure whether the economy is actually back in recession until we get Q1’s figures. But our bet is that the UK is now back in recession and that the economy …
25th January 2012
A few local hot-spots aside, 2011 was not a great year for UK property markets. But the signs are that 2012 will be worse. Activity will remain weak and both commercial and residential property prices are likely to fall by at least 5%. If events in the …
There are no easy options left for the policymakers – but there are still options. For the MPC, there is not only more QE, but altering the form this takes. For the Government there are plenty of ways to boost both its own investment and that in the …
24th January 2012
December’s public finance figures showed that government borrowing is still coming in comfortably below last year’s totals. But with tomorrow’s GDP figures possibly set to show that the economy is already back in recession, borrowing is likely to be much …
Quantitative easing (QE) is not only helping to reduce gilt yields for the Government, but it is also lowering the amount that the Government is paying out in debt interest and therefore helping to reduce the size of its deficit. This effect is not yet …
A major constraint on economic growth last year – high inflation – now looks set to ease. However, this boost will not prevent household spending from falling again in 2012. Thankfully, near-zero inflation should foster a recovery in spending in 2013, …
23rd January 2012
France is spearheading a drive to push ahead with a “Tobin tax” on financial transactions in Europe, even though the UK has ruled out taking part. If a comprehensive tax were introduced, the potential boost to the UK’s financial services sector as …
The UK’s AAA rating always looked safer than the ratings of those euro-zone countries which have been recently downgraded. The UK might yet be in line for a downgrade at some point. But even then, it is unlikely to lose its safe-haven status. … UK’s …
Consumers finally spent more on the high street before Christmas, perhaps tempted by the bigger price discounts that retailers were offering. … A stronger end to the …
20th January 2012
Although December’s official retail sales figures confirmed that consumers flocked to the high street in the run-up to Christmas, we still think that consumers will find it hard to keep increasing their spending at this rate in the months ahead. … …
The economic and financial effects of a limited break-up of the euro-zone commencing this year could knock some 3% to 4% off the level of UK GDP by the end of 2013. A bigger, more disorderly, break-up could have much more damaging effects. … Just how …
19th January 2012
There are obviously major uncertainties about what form Scottish independence might take if it happens, including what currency Scotland might use and what responsibility for RBS she might take on. But the similarity of the structure and recent …
On balance, there was more to worry about than to cheer in the latest labour market data. While there were perhaps some signs that the deterioration in the labour market is beginning to ease, we expect unemployment to rise much further as the economy …
18th January 2012
Inflation took another step down in December and further chunky falls lie ahead, helped by the recent announcements of gas and electricity price cuts. This clears the way for significantly more asset purchases from the Bank of England. … Consumer Prices …
17th January 2012
While the drop in bond yields in recent months has been a generally welcome development, it does have its disadvantages, as highlighted by last week’s figures on company pension schemes. But last week did at least bring better news about the beleaguered …
16th January 2012
