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Spend, spend, spend…and spend Not that long ago a £30bn (1.4% of 2019 GDP) package of tax cuts and extra government spending would have been lauded as fiscal largesse. But coming on top of the £160bn (7.2% of GDP) already spent since the start of the …
10th July 2020
Divisions on the MPC The evidence continued to pile up this week that the economy is rebounding more quickly than we had previously expected. Footfall on UK high streets has risen sharply. On 1st June it was 75% below pre-crisis, but by the end of the …
3rd July 2020
While we were correct in forecasting a peak-to-trough fall in GDP of 25% (see here ) , recent data suggest that the rebound in economic activity began sooner and has been a bit stronger than we had previously anticipated. By May, the retail sector had …
26th June 2020
On the road to recovery The sharper-than-expected rebound in retail sales in May shows that the economy has turned the corner and embarked on the recovery leg at pace. (See here .) The quicker reopening of the economy suggests that GDP might contract by …
19th June 2020
Nailed it! At the risk of tooting our own horn too much (and tempting fate), the 25.0% drop in GDP since February means that our forecasts for the impact of the coronavirus lockdown on the UK economy have been spot on recently. (See here .) Indeed, back …
12th June 2020
Business debt up, household savings up We got another look into how household and business finances are doing this week. Non-financial businesses took on another £8.4bn of bank debt in April, on top of the record £30.2bn they borrowed in March. This takes …
5th June 2020
While this week’s high frequency data have confirmed that the low point for the economy is behind us, the figures have done little to alleviate our concerns that the recovery will be protracted. The good news is that after giving the green light to some …
29th May 2020
The goings on in the gilt market neatly summarise how it is been a negative week for the economy and financial markets. On Wednesday, the government sold 3-year gilts at a negative yield (of 0.003%) for the first time, meaning that if investors hold the …
22nd May 2020
As the UK imports lessons from Asian countries about controlling pandemics, it may also be useful to take note of the fiscal situation in Japan. The UK Treasury is reportedly already thinking up ways to reduce public debt in the aftermath of the …
15th May 2020
BoE scenario too optimistic There can be little doubt about how bad the recession will be now that the Bank of England has joined us and the Office for Budget Responsibility in forecasting that GDP will fall by 25-35%. Indeed, we will get the first glance …
7th May 2020
Easing envy It’s possible that on the day before next Friday’s bank holiday to commemorate the 75 th anniversary of the end of the Second War World (VE Day), Boris Johnson will declare that the UK is winning the war against the coronavirus. But while the …
1st May 2020
This week’s economic news has been in line with our expectations that economic output will fall by around 25% in the first half of this year. The 5.1% m/m fall in retail sales volumes in March suggests that household consumption declined by at least 4% …
24th April 2020
We fear that the forecasts for the economy published this week by the Office for Budget Responsibility (OBR) will prove to be far too optimistic. We’re not talking about its warning that the coronavirus lockdown will trigger a 35% drop in GDP. There’s no …
17th April 2020
With the number of people fighting COVID-19 in hospital rising day by day, the recent talk of an “exit strategy” from the lockdown appears premature. Even when the restrictions are lifted, consumer and business caution, high unemployment and many …
9th April 2020
Despite policymakers’ best efforts, it is looking more likely that the unemployment rate and businesses insolvencies could rise as high as in the Global Financial Crisis. Policymakers aim high, but measures fall short The Treasury and the Bank of England …
3rd April 2020
While we still expect the economy to rebound strongly after the virus has been contained, the surge in Universal Credit benefit claims this week raises the risk that it won’t get back to “normal” as quickly as we had previously thought. Policymakers throw …
27th March 2020
There is no doubt that the coronavirus health crisis has already led to an economic crisis and this week we saw the first real signs of severe disruption in the financial markets. Health crisis The spread of the coronavirus is at an earlier stage in the …
20th March 2020
This week’s shift in the UK government’s coronavirus strategy from the “contain” stage to the “delay” stage has not yet led to the stringent measures deployed in Europe, such as school closures and bans on mass gatherings, which would put a large dent in …
13th March 2020
With the number of coronavirus cases in the UK having reached 116 and rising, we now think that a change in consumer behaviour and working practices will weigh on economic activity this year. Consumer spending is particularly important in the UK, …
6th March 2020
The 11% fall in UK equity prices this week shows that the situation is changing rapidly and that the financial markets appear to be pricing in the coronavirus triggering a marked weakening in the global and UK economies. At the same time, the markets have …
28th February 2020
The first official data for January piled more evidence onto our view that the economy will rebound in Q1 2020 after hitting a nadir in Q4 2019. But the growing impact of coronavirus on China’s economy and the weakness in the euro-zone threaten to stifle …
21st February 2020
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
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
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
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
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
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
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
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 …
20th 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
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 …
6th December 2019
The latest polls suggest that the Conservatives are increasingly likely to win a big enough majority in the election on 12 th December to allow them to pass Boris Johnson’s Brexit deal, which would mean the UK leaves the EU on 31 st January and enters a …
29th November 2019
The Johnson-Corbyn TV debate, the release of the Labour and Lib Dem manifestos, and a fake fact-checking twitter page all gave the impression that the election on 12 th December is getting close. The Conservative manifesto may be released on Sunday, …
22nd November 2019
With employment falling and GDP contracting in September, the government will have been glad to close the door on Q3. But looking out of the window onto Q4, the view isn’t much better. It has (thankfully) been a relatively quiet week on the political and …
15th November 2019
The policy debate has shifted this week to just how large a fiscal stimulus is in prospect and whether the Monetary Policy Committee (MPC) might soon cut interest rates. We warned this would happen. We were the only ones to predict that any MPC members …
8th November 2019
The confirmation that Brexit has been rescheduled from yesterday to the 31 st January cleared the way for MPs to agree to a general election on Thursday 12 th December that could resolve Brexit. With the Conservatives well ahead in the polls, a …
1st November 2019
Although the pound has fallen back from its recent high of $1.30 on Monday to $1.28 now, you could say that it has been remarkably stable given that, technically, if nothing changes in the coming days there would be a no deal Brexit in just six days’ …
25th October 2019
Last week, we said that there were two big obstacles in the pathway to a Brexit deal. With the UK and the EU having come to an agreement, one hurdle has been overcome. (See here .) The second, whether Parliament passes that agreement, will be clear enough …
18th October 2019
Still significant obstacles on the pathway to a deal After more than three years since the Brexit vote, it only took a two-hour chat between Boris Johnson and his Irish counterpart, Leo Varadkar, on Thursday to find a “pathway to a possible deal”! It’s …
11th October 2019
Boris Johnson unveiled his “two borders, four years” proposal for a Brexit deal this week. The first border, comes from Northern Ireland aligning with some EU regulations after the UK has left the EU. This would create a border in the Irish Sea between …
4th October 2019
Despite the headwinds from the global economic slowdown and the political chaos around Brexit, there are still good reasons to think that GDP grew in Q3. However, it is clear that the performance of the UK economy will remain below-par until Brexit is …
27th September 2019
In recent years the economy has been moving towards full capacity, but at this week’s meeting the Monetary Policy Committee (MPC) judged that it has changed direction and slack is now opening up. Whether that continues, and whether the Committee …
20th September 2019
With the ECB loosening monetary policy this week, the Fed expected to cut interest rates for the second time in two months next week and the growing political chaos at home, you’d be forgiven for thinking that the Bank of England might be poised to cut …
13th September 2019
The current economic backdrop means it wouldn’t usually be a good time for the Prime Minister, Boris Johnson, to push for a general election. The 0.2% q/q fall in GDP in Q2 has been followed by a suite of weak activity PMIs in August that has increased …
6th September 2019
The PM’s decision to suspend Parliament from the week commencing 9 th September to 14 th October has increased the downside risks to the economy by increasing the chances of a no deal Brexit on 31 st October. (See here .) Indeed, in the week that many …
30th August 2019
We have our doubts that a US-UK trade deal, even a “modular” one, will be easily achievable if there is a no deal Brexit. In any case, the bigger issue will still be the trading relationship between the UK and the EU. Boris Johnson’s meetings with …
23rd August 2019
Whereas an inverted yield curve has been a good indicator of US recessions, the UK yield curve is less reliable. The US treasury yield curve has inverted before all five US recessions in the past five decades, with only one false positive. Over the same …
16th August 2019
The contraction in GDP in Q2 together with the partial inversion of the gilt yield curve has raised concerns that a recession in the UK is on the way if it’s not already here. Indeed, the 0.2% q/q fall in GDP in Q2 suggests the UK is half way towards a …
9th August 2019
MPC living in an alternative reality In our latest UK Economic Outlook , “ An economic multiverse ” (16 th July) , we set out the different paths politics could send the economy down. The MPC took a different approach this week, forecasting an alternative …
2nd August 2019
Looser fiscal policy on the way It came as no surprise that Boris Johnson became the UK’s new Prime Minister this week. ( See here .) And in his first speech in Parliament on Thursday there was no sign of him rowing back on his campaign pledges for the UK …
26th July 2019