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Note: We’ll be discussing the UK inflation, growth and policy outlooks after the June CPI release on Wednesday 19th July . Register here to join that 20-minute online briefing. To the extent that economic conditions influence general elections, and of …
11th July 2023
The long NHS waiting lists may be one reason why some people are unable to work and may therefore be contributing to inflation being higher in the UK than in other major economies. As the NHS waiting list is unlikely to shorten soon, we think that …
5th July 2023
Note: We’ll be discussing the UK inflation, growth and policy outlooks after the June CPI release on Wednesday, 19 th July . Register here to join that 20-minute online briefing. The 50 basis point (bps) interest rate rise by the Bank of England today, …
22nd June 2023
With less than a year and a half to go until the next general election, calls for the Chancellor, Jeremy Hunt, to cut a range of taxes have been growing. But recent economic developments mean the Chancellor is unlikely to have much fiscal firepower …
12th June 2023
Many of the factors that explain the UK’s chronically weak GDP growth since the pandemic, such as the shrinking of the UK’s workforce and low export growth, won’t disappear any time soon. This explains why we expect the UK economy’s underperformance to …
6th June 2023
The recent decline in the number of job vacancies suggests that the upward pressure on wage growth from labour shortages is probably past its peak. But it’s still not clear that wage growth will slow fast enough to ease the Bank of England’s concerns over …
5th June 2023
Although the economy weathered the cost of living crisis much better than most expected, the full force of the cost of borrowing crunch has yet to be felt. And with it looking as though interest rates need to rise further to quash inflation, we think the …
1st June 2023
While it is a hot political potato, well targeted migration could be one part of the solution to the UK’s labour shortages problem. That could help inflation and interest rates be lower than otherwise. Net migration of 606,000 in the year to December 2022 …
25th May 2023
The most troubling aspect of April’s inflation data, released earlier today, was evidence that price pressures are becoming increasingly domestically generated. Accordingly, we now expect the Bank of England to raise interest rates further than we …
24th May 2023
More convincing evidence of a loosening in the labour market and an easing in labour costs growth has started to emerge. It may not prevent the Bank of England from raising interest rate above 4.50%. But it does tentatively support our view that the peak …
22nd May 2023
Today’s 25 basis point (bps) rise in interest rates from 4.25% to 4.50% takes rates to our long-held forecast and may be the last hike, although one or two more hikes are possible. We suspect the subsequent holding phase will be fairly long, lasting until …
11th May 2023
A combination of the falls in global agricultural commodity prices, energy prices and wage growth will soon drag down food CPI inflation from a 46-year high of 19.6% in March perhaps to around 4.5% by the end of the year. Food inflation will soon become a …
3rd May 2023
This Update was originally published on 19 th April. We have updated the data, charts and text to reflect the growing divergence between inflation in the UK and elsewhere evident after today’s release of the UK inflation figures for May. Clients can read …
19th April 2023
The fading effects of the mini-budget meant that bank lending conditions to households and businesses didn’t deteriorate any further in Q1. But the latest credit conditions survey doesn’t capture the full extent of the tightening triggered by recent …
13th April 2023
The “ Powering up Britain ” plan presented by the UK government this week highlights the benefits and limitations of official involvement in reducing emissions. On the one hand, the plans to reduce the price of electricity relative to gas will help to …
31st March 2023
While households and businesses took further advantage of rising interest rates in February by moving money into bank accounts with higher rates, they are not withdrawing money from the overall banking system. We doubt this significantly changed after the …
30th March 2023
The Bank of England followed the Fed’s example by forging ahead today with a 25 basis point (bps) interest rate hike, taking rates from 4.00% to 4.25%. This could prove to be the last hike of the tightening cycle. But if wage growth and CPI services …
23rd March 2023
While the Credit Suisse rescue might draw a line under that particular institution’s problems, it is clear that confidence in the financial sector overall is still extremely fragile. So regardless of whether more financial institutions run into trouble, …
20th March 2023
This checklist helps clients keep track of the key forecasts announced during the Spring Budget at 12.30pm (GMT) on Wednesday 15 th March. Our more detailed preview is here . We will send a Rapid Response shortly after the speech, we are hosting a “Drop …
14th March 2023
The numerous “plans for growth” that have been announced by the Government, the Opposition, and various commentators in recent months vary in their analytical rigour but all miss one crucial point: many of the reforms required to lift the UK’s pitifully …
9th March 2023
A widening in profit margins could mean that inflation is slower to fall back to the Bank of England’s 2.0% target than we expect. That would cause the Bank to raise interest rates even further than we currently anticipate and/or keep them higher for …
28th February 2023
There is mounting evidence that households’ pandemic savings will no longer be able to support real spending. That implies from now on, real consumer spending will have to evolve in line with real incomes. The conventional wisdom is that households and …
22nd February 2023
Being ranked by the Sunday Times as the top UK economic forecaster for 2022 is a great accolade and has generated a lot of interest in what we expect to happen next. Our forecasts for 2023 imply a tougher year than the consensus, with higher inflation …
20th February 2023
The UK avoided a recession last year partly because of more spending by households on restaurants and trains and partly because of more investment by businesses in aircraft, cars and cruise ships. This suggests the recovery from the pandemic cushioned …
16th February 2023
We think business insolvencies may rise to a record high of around 8,400 per quarter by Q2 2024 and take until at least early 2025 to return to a more “normal” level of just over 4,000 per quarter. The total rise in insolvencies above this normal level is …
9th February 2023
While raising rates by 50 basis points (bps) today, from 3.50% to 4.00%, the Bank of England implied that rates are very close to their peak. We still think that rates may rise to 4.50%, but perhaps via two 25bps increases rather than one 50bps rise. …
2nd February 2023
With interest rates nearing a peak, the next two phases of monetary policy will most probably be rates being held at that peak and then being cut. The Bank of England may soon provide some guidance on both, although ultimately it will be the economy that …
1st February 2023
The shift away from floating-rate to fixed-rate mortgages has meant that it was always going to take longer than in past tightening cycles for the rise in interest rates to feed through to the real economy. This is one reason why we think that once Bank …
While we expect employment to weaken, it’s happening at a glacial pace. That feeds into our view that once interest rates peak (perhaps at 4.50% up from 3.50% now) they will stay high for all of this year. Employment rose by 27,000 between August and …
31st January 2023
The shift away from floating-rate to fixed-rate mortgages presents risks as well as benefits. It will protect homeowners who are lucky enough to have a long time remaining on their fixed rate contract from higher mortgage payments. But that reduces the …
30th January 2023
The recent resilience of the economy to the dual drags of high inflation and higher interest rates doesn’t mean the pain has been avoided. Instead, our analysis suggests that higher interest rates will become a bigger drag on activity in the most …
16th January 2023
While the shift towards higher taxes and spending after the pandemic appears to be here to stay, there is little to suggest an expanded state would curtail GDP growth. But without supply-side reforms aimed at solving the UK’s fundamental problems of low …
10th January 2023
The recent plunge in wholesale gas prices means that utility prices for households may fall below the government’s price freeze in July. As a result, CPI inflation will be around 0.3 percentage points (ppts) lower than we previously thought in the second …
6th January 2023
The Bank of England followed the Fed by slowing the pace of interest rate hikes from 75 basis points (bps) in November to 50bps hike today as widely expected, which took rates from 3.00% to 3.50%. But unlike the hawkish Fed, the Bank sounded a touch …
15th December 2022
The strikes in December won’t help the economy when it is probably already in recession. But we think real GDP may only be around 0.0-0.5% lower in December than otherwise. More important may be larger pay rises on the back of the strikes possibly …
There is a good chance that CPI inflation has peaked or will peak before the end of the year. There are even some signs that inflation is becoming less persistent. This may contribute to the Bank of England slowing the pace of rate hikes from 75 basis …
2nd December 2022
The Treasury has started to make payments to the Bank of England’s Asset Purchase Facility (APF) to cover the losses it has racked up because of the Bank of England’s gilt purchases. While this won’t force the Chancellor to tighten fiscal policy …
25th November 2022
With fiscal policy no longer expected to be ultra-loose and some signs emerging that domestic price pressures will ease further ahead, we no longer expect the Bank of England to raise interest rates to a peak of 5.00%. Our new forecast of an increase …
23rd November 2022
This checklist helps clients keep track of the key economic and public finances forecasts announced during the Chancellor’s Autumn Statement at 11.30am on Thursday 17 th November. We will send a Rapid Response shortly after the speech, we are hosting a …
16th November 2022
Although the Monetary Policy Committee (MPC) raised interest rates today by 75 basis points (bps), from 2.25% to a 14-year high of 3.00%, it sent the strongest signal yet that it thinks rates won’t need to rise much above 4.00%. But with price/wage …
3rd November 2022
Whichever way events unfold over the next few days, it seems clear the next Prime Minister (Rishi Sunak or Penny Mordaunt) will have to work hard to restore credibility in the eyes of the markets by revealing measures to fill the hole in the public …
24th October 2022
The UK property market has a long history of either causing or worsening recessions. But that history has taught both banks and regulators a lesson. So while higher debt payments, falling property prices and a slump in construction will play a major …
19th October 2022
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
If interest rates rise from 2.25% to 5.00%, as we now expect, we think the economy will suffer a deeper recession involving a 2% peak-to-trough fall in real GDP. That may result in the unemployment rate rising from 3.6% in July to 5.5% and may …
5th October 2022
If the UK government’s “new era of fiscal policy” boosts GDP growth as planned, the UK’s long-term prospects will be much improved. But the action announced so far will not achieve this. It is even possible that, by denting the UK’s fiscal credibility, …
30th September 2022
In response to the government’s loose fiscal plans and the resulting weakening in the pound, we now think that interest rates will rise from 2.25% now to a peak of 5.00% (4.00% previously). Rates at those levels make the housing market look very …
27th September 2022
The rise in market interest rates that has already happened will push up mortgage rates to at least 6% and reduce the size of loans that lenders can offer. The resulting drop in buying power makes a significant drop in house prices inevitable. Many …
Long-term fiscal sustainability is governed by what happens to a combination of economic growth, government borrowing costs and the primary budget balance. Since we’re sceptical that the tax cuts announced by Kwasi Kwarteng last week will boost …
Investors have revised up how far they expect the Bank of England to raise interest rates as they continue to digest the tax cuts announced on Friday. This Update examines what the impact on the housing market would be, and whether that could prevent …
The Chancellor claimed that this was a plan for growth. But unless the Chancellor’s gamble pays off and the government’s fiscal policy boosts GDP growth by 0.5-1.0ppts per annum, the risk is that once the near-term boost to GDP fades, the legacy of the …
23rd September 2022