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The discovery of the Omicron COVID-19 variant in late November rattled UK markets. Equities tumbled, sterling weakened and corporate credit spreads jumped. And, while the initial reaction was not unique to the UK, it does seem that investors remain a bit …
15th December 2021
Inflation close to being further above the target than ever before Inflation is close to being further above the target than at any point since the UK started targeting inflation in October 1992. This makes tomorrow’s interest rate decision look closer, …
The decision by Hungary’s central bank (MNB) to raise its base rate by 30bp, to 2.40%, at today’s meeting is largely symbolic. The key point is that the central bank struck a clear hawkish tone and will continue to push up interbank interest rates …
14th December 2021
Reports that the surge in Omicron COVID-19 cases is causing some people to stay away from work, schools, pubs and restaurants increases the downside risks to our December and January GDP forecasts. But the big step down would happen if there were another …
While mortgage lending slowed in Q3 as the stamp duty holiday was tapered, an easing of deposit requirements supported first-time buyer demand. Meanwhile, the Financial Policy Committee’s plan to withdraw its affordability stress test will allow banks to …
Overview – The near-term economic outlook has weakened, though GDP in the region had already surpassed its pre-virus levels by Q3. Meanwhile, inflation is set to fall back next year, allowing most central banks to keep interest rates on hold. While the …
Industry has better start to Q4, but supply problems persist The rise in euro-zone industrial production in October means euro-zone industry started Q4 on a decent note. But supply-chain problems remain acute and, in any case, any improvement is likely to …
More fodder for the Riksbank’s hawks The increase in Swedish CPIF inflation in November strengthens the hand of the hawks at the Riksbank and supports our view that policymakers will reduce the size of the balance sheet next year. But with energy effects …
Furlough fears fading, COVID-19 concerns climbing Even though the fallout after the furlough scheme was smaller and shorter than the Bank of England had feared, concerns over the deteriorating COVID-19 situation will probably prevent it from raising …
Consumers will feel a squeeze on their finances next year as inflation and taxes rise. That will take some wind out of the housing market’s sails, but it will not cause a correction. A spike in inflation and a hike in National Insurance contributions in …
13th December 2021
Italy will elect its next president in January, with prime minister Mario Draghi widely touted as a favourite to take up the post. If he did so, the current government would probably fall apart, making it more difficult to pass necessary economic reforms …
Strong start to Q4, but currency crisis to hit activity before long Turkey’s industrial production and retail sales data for October suggest that the economy made a strong start to Q4, but these predate the recent currency crisis and we think the economy …
Sanctions threat rears its ugly head again The newswires have been abuzz this week with reports of a potential Russian military conflict with Ukraine and a renewed threat of US sanctions. The proposed sanctions are at the more aggressive end of the …
10th December 2021
Office space under construction declined for a third consecutive quarter according to the Winter London Crane Survey, despite an uptick in new starts. Given the challenges the office sector faces, we believe that activity is likely to decrease even …
The government’s recently-imposed “Plan B” COVID-19 restrictions mean there is a good chance that the economy contracted in December. If the pressure on the NHS increases, restrictions might be tightened further, implying substantial downside risks to Q1 …
Interview coaching for SNB candidates This week’s announcement that Fritz Zurbrügg – one of the three members of the SNB’s Governing Board – will retire at the end of July 2022 sounded the starting gun to appoint his successor. We are not privy to the …
This week brought yet more bad news for the euro-zone economy. Although German industrial output grew by 2.8% on the month in October, driven by a rebound in the struggling auto sector, this followed months of declines and left production 6.5% below its …
Energy effects to subside next year Headline inflation reached a 13-year high in November, mainly driven by energy inflation. But the core rate was more subdued and is likely to remain below the Norges Bank’s target throughout 2022. The rise in headline …
Touch-and-go whether economy grows or contracts in December The news that the economy was hardly growing at all before Omicron means it is touch-and-go whether it will grow a bit in December or shrink a bit. Against that background, we doubt the Bank of …
Bank to raise 2022 inflation forecast but still predict an undershoot in 2023. Policymakers will keep open possibility of using the PEPP after March. Christine Lagarde will stress uncertainty and need for flexibility. Just a day after we expect the Fed to …
9th December 2021
A hike this month does not look likely, but is possible Omicron is unlikely to prompt more QE or negative interest rates Lift off to occur early next year, but rates probably won’t rise as far as investors expect We wouldn’t completely rule it out, but we …
The Omicron variant has heightened the near-term risks for both the economy and UK commercial property. The latest restrictions show that there is still considerable uncertainty, but our estimates suggest that the downside is limited and the sector should …
Omicron means that a Norges Bank rate hike next Thursday is no longer as nailed on a prospect as it once was, but we still think that policymakers will decide to raise rates to +0.50%. Meanwhile, although the SNB has let the franc rise in recent weeks, it …
Overview – The near-term economic outlook has weakened, with the Omicron variant posing further downside risk. Meanwhile, inflation is likely to be higher for longer. However, we expect it to fall back by 2023, allowing interest rates to remain low. This …
Tighter Covid restrictions and increased consumer caution appear to be causing euro-zone activity to decline. We have revised our euro-zone Q4 GDP growth forecast down to 0.2% q/q and the risks are still to the downside. Although there is still a lot of …
8th December 2021
The National Bank of Poland’s decision to slow the pace of its tightening cycle with a 50bp interest rate hike (to 1.75%) seems a bit inconsistent with its more hawkish tone on inflation in the accompanying press statement. Even so, we think the backdrop …
Another 75bp hike on the cards next week The rise in Russian inflation to 8.4% y/y last month reinforces our view that the central bank will hike the one-week repo rate by 75bp (to 8.25%) when it meets in December – that’s a larger hike than the current …
The tightening of Covid restrictions in the Netherlands in response to the resurgence of the virus there in recent weeks will put a temporary brake on GDP growth in Q4. But we think that the underlying strength of domestic demand and an increase in net …
Banking sectors in Emerging Europe have come through the pandemic with few scars and vulnerabilities generally remain low, but we identify three potential areas of concern, including deposit dollarisation in Turkey, frothy lending growth in Russia as well …
7th December 2021
New Covid wave and supply shortages weighing on economy Data released today show that the euro-zone economy recovered to within 0.5% of its pre-pandemic level in Q3. But with Covid cases rising, governments tightening restrictions, and supply problems …
The dramatic slump in the Turkish lira over the past month once again leaves the currency firmly in crisis territory. One crumb of comfort is that Turkish banks are in a better position to cope with large falls in the lira than they were during the 2018 …
While the emergence of the Omicron COVID-19 variant has increased the downside risks to our GDP forecasts, it has arguably increased the upside risks to our CPI inflation forecasts. The transmissibility, severity and capacity for Omicron to escape …
Partial recovery in auto sector lifts output The rebound in auto output in October means that aggregate industrial production may increase in the fourth quarter. But with the services sector being hit hard by new Covid restrictions, it seems likely that …
High frequency data show that travel to retail and recreation destinations, restaurant bookings and flights have all declined in the past few weeks as coronavirus restrictions have been tightened in the face of rising hospitalisations. (See Chart 1.) It …
6th December 2021
PMI points to improvement, as constraints fade slightly The construction PMI rose for a second-consecutive month in October, to its highest level since July. However, we expect continued labour and supply shortages to hamper output in the near term. While …
Omicron not yet likely to stop further rate hikes One of the key talking points this week has been the spread of the Omicron variant, which has sparked renewed fears about the effectiveness of vaccines and tighter restrictions. Recoveries are likely to …
3rd December 2021
Omicron is reducing socialising Just one week after the emergence of the Omicron COVID-19 variant there are lots of anecdotal reports of Christmas parties being cancelled and some tentative evidence that activity has softened. In the week before the …
“You shall not pass!” [the CHF 1.04 per euro mark] We were ahead of the curve in arguing that the SNB would wave goodbye to the implicit ceiling of CHF 1.05 per euro that it defended in earnest during the early stages of the pandemic. (See here .) …
In contrast to those at the US Fed, ECB policymakers are not ready to retire their argument that the current bout of high inflation is temporary. Indeed, Vice President Luis de Guindos said this week that “the high rate of inflation we’re experiencing …
Consumption set for a weak Q4 Euro-zone retail sales have levelled off since June, but rising Covid cases and the return of restrictions are likely to weigh on sales and other components of consumption in the coming months. October’s 0.2% m/m increase in …
Commercial property’s recent good run continued in October. The annual rate of rental growth surged ahead after only breaching positive territory for the first time in almost two years during August. However, given the economy’s headwinds over the near …
Poland’s industrial sector as a whole has shaken off widespread materials shortages in recent months, in part due to its more diversified sectoral make-up than the rest of CEE. But it also reflects the fruits of recent investments into new production …
2nd December 2021
Covid situation casts doubt on further labour market gains While labour market conditions continued to improve in October, the recent deterioration of the Covid situation and increased uncertainty due to the Omicron variant are likely to mean the recovery …
November’s PMIs offered tentative signs that the worst of the supply disruption may have passed, but the bigger picture is that manufacturers in the emerging world remain stretched. And while it’s still too early to tell, the Omicron variant could …
1st December 2021
Given the uncertainty around Omicron, and the revealed preference of the SNB in recent weeks to largely stay out of the FX market, we would not be surprised to see the Swiss franc rise further against the euro in the near term. But any upside is limited, …
Supply chain disruptions continue to dominate The manufacturing PMIs in November were surprisingly strong across the board, but with supply chains stretched and the emergence of the Omicron variant clouding the outlook, there are reasons to be sceptical …
Swiss inflation at its peak Inflation surprised on the upside in Switzerland in November, but this was due to temporary factors and it is likely to fall back to below 1.0% over the coming months. The upshot is that there is next to no chance of the SNB …
Still no sign of house price growth cooling House prices recorded another above-consensus gain in November as strong buyer demand bid prices up further. There is little sign of that dynamic changing anytime soon, so we expect the consensus forecast for …
The confirmation earlier today that far-right pundit Eric Zemmour will stand in France’s presidential election next spring comes as no surprise given his rise in the polls. But French President Emmanuel Macron still looks on course to win a second term, …
30th November 2021
Inflation to remain above target for a long time November’s inflation data were yet another surprise on the upside. The Omicron variant has increased the level of uncertainty even further but for now we suspect that it will have a fairly small impact on …
