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Brexit is going to get a lot of airtime over the next few hours, days and weeks, especially once the outcome of the call between Boris Johnson and Ursula von der Leyen later this afternoon is made public. But most of the coverage about a deal or no deal …
7th December 2020
COVID-19 vaccines are a gamechanger for our economic forecasts and mean that we now think that by the middle of the decade the economy won’t be much smaller than if the COVID-19 crisis had never happened. This is a more positive outlook than the views of …
27th November 2020
The Chancellor, Rishi Sunak, was right to say today that now is not the time to tighten fiscal policy. But given the OBR’s downbeat forecasts, the biggest danger is that the government is lured into withdrawing its support too much too soon. That could …
25th November 2020
Our measures of labour market slack suggest that the official unemployment rate is significantly understating how much spare capacity there is at the moment and will probably continue to do so for a long time. This supports our view that even with a …
16th November 2020
The Bank of England won’t be worried by the recent jump in gilt yields given that it has been triggered by the growing possibility of a COVID-19 vaccine improving the economic outlook. As such, we have revised up our gilt yield forecasts. However, as the …
11th November 2020
There have been some concerns that as well as there being little scope to generate stimulus through interest rate cuts, the Bank of England is now reaching its limits on Quantitative Easing (QE). But the Bank seems open to loosening its own QE rules. And …
An effective COVID-19 vaccine would dramatically improve the economic outlook. It may allow GDP to rise to its pre-virus level a year earlier than otherwise and mean that the unemployment rate peaks at 7% next year instead of 9%. But while this would …
10th November 2020
This UK Economics Update contains full details of our new economic and financial market forecasts if there is a Brexit deal and for two different kinds of no deal Brexit. It also highlights that business investment is going to remain in the doldrums for …
5th November 2020
Back in June, we predicted that the Bank of England would expand quantitative easing (QE) by a further £350bn over the following 18 months (consensus £100bn). (See here .) By announcing an extra £150bn of QE today, the Bank has already done £250bn of …
We estimate that the second England-wide lockdown will cause GDP to fall by around 8% m/m in November, prompt the unemployment rate to climb to a peak of 9% next year, contribute to the government borrowing around £420bn (21.7% of GDP) this year and lead …
3rd November 2020
The government is removing some of its support to employment. The national furlough ends on the 31 st October and the new Job Support Scheme is less generous and narrower. As a result, the pace of the fall in employment will soon speed up. At its peak in …
20th October 2020
While we wouldn’t rule out negative interest rates being used a bit further down the line, over the next 6-12 months we think 10-year gilt yields will be kept close to 0.15% by the Bank of England expanding quantitative easing (QE) by a further £250bn by …
A “circuit-breaker” lockdown where most pubs and restaurants are closed across the country would throw the economic recovery into reverse and mean that, depending on the severity and length of the restrictions, it could be well into 2023 before GDP …
15th October 2020
Consumers appear to be much more miserable than the economic fundamentals would imply. But the prospect of a second wave of unemployment and the risk of future lockdowns are not captured well by the models. As such, consumer confidence is likely to stay …
5th October 2020
The policy measures announced today by the Chancellor will go some way to cushioning the blow to the economic recovery from the new restrictions to contain COVID-19 and limiting the long-term hit to unemployment. But these actions won’t eliminate the hit …
24th September 2020
The new restrictions to contain COVID-19 won’t prevent some sectors from continuing to recover, but they will cause others to go backwards. And based on an assumption that restrictions are more likely to be tightened further than loosened, we think …
23rd September 2020
A tightening in restrictions designed to quash the resurgence in new COVID-19 cases would set back the economic recovery. We’ll be in a better position to quantify the impact once the government announces its plan tomorrow. But if the government resorted …
21st September 2020
As the Bank of England already has a QE programme in place and financial markets have remained calm, it was no surprise that the MPC voted unanimously to keep policy unchanged in September. But we think that it will loosen policy further, most likely in …
17th September 2020
We don’t think that the recent underperformance of UK equities will continue. But we no longer expect them to make up the ground that they have lost to their peers since the virus hit. Since the plunge in equity prices in March, UK equities have …
14th September 2020
The recent rebound in housing transactions and jump in house prices will boost consumption over the coming months, but the boost will only be temporary. Once the stamp duty holiday expires at the end of March and the unemployment rate starts to rise, the …
The financial markets have woken up with a bang to the possibility that the Brexit transition period ends on 31 st December without a deal. That could set back the UK’s economic recovery from the coronavirus recession and prompt the pound to weaken from …
10th September 2020
The economy’s impressive initial recovery from the coronavirus recession will soon fade. That was always going to happen naturally once most sectors had reopened. But the prospect of some tax rises in the Autumn Budget, the resurgence in Brexit …
7th September 2020
While the Bank of England might not follow the Fed and change its inflation remit, we doubt this will stop it from significantly loosening policy and from keeping it loose for a very long time. The Fed announced last week that it will now seek “to achieve …
3rd September 2020
The reopening of schools this week could give a boost to GDP of around 5% as output in the education sector returns to normal and parents who have had to provide childcare get back to work. The impact that school closures had on the economy was determined …
The recovery in total consumer spending is almost certainly lagging well behind the surge in retail sales. And although the early signs of a recovery have been positive, a coming wave of unemployment will put a dampener on consumers’ willingness and …
27th August 2020
Despite the news that the latest round of UK-EU Brexit negotiations ended in deadlock last Friday, sterling has remained remarkably stable. This suggests that while there may be some small upside for sterling if a slim trade deal is agreed by 31 st …
With the so-called “easy” part of the economic recovery probably coming to an end, the next leg is likely to be slower, particularly if like overseas, the UK suffers a renewed surge in virus cases and more localised lockdowns. While the high frequency …
26th August 2020
The recent lull in business insolvencies will almost certainly be followed by a wave of businesses going bust as government support is withdrawn. This will contribute to a surge in unemployment over the next year and is one reason why we expect the strong …
25th August 2020
While the success of the UK’s job furlough scheme has prevented the unemployment rate from rising as far as it has in the US, an increase in UK unemployment has been delayed rather than avoided altogether. This is a key reason why we expect an impressive …
20th August 2020
The sudden imposition of quarantine on people arriving from France highlights the risks involved in foreign travel while the virus is still circulating. This uncertainty is likely to mean it takes a very long time for international travel to recover from …
19th August 2020
The success of the Eat Out to Help Out (EOHO) scheme suggests that fears about the virus are not preventing activity. But as meals out only seem to be popular due to a heavy discount, consumers are still behaving cautiously. This restraint is part of the …
11th August 2020
By July, we think that around 4 million people had already left the government’s job furlough scheme and 5 million remained on the scheme. That fall is faster than we had expected but does not change our forecast that the ILO unemployment rate will reach …
10th August 2020
We don’t think that the recent resurgence in the coronavirus in certain parts of the UK makes the economic outlook any weaker than we already thought. But more widespread outbreaks would either slow the pace of the economic recovery, stall it, or send it …
7th August 2020
The Monetary Policy Committee (MPC) left its interest rate and quantitative easing (QE) policies unchanged today and its new projections appear to suggest that no further loosening is required. But its dovish language is more important for the future path …
6th August 2020
A surge in new domestic coronavirus cases is the biggest downside risk to our forecast that it will take two years for the economy to return to its pre-crisis peak. It could mean that the recovery takes even longer. And if it coincided with the winter flu …
28th July 2020
A new type of recession requires new tools to measure it. It has become clear that the activity PMIs will be of little use in gauging the extent and pace of the recovery from the coronavirus crisis. Our new “Capital Economics BICS Indicator”, which is …
27th July 2020
The economy is on life support, but this can’t last forever. This Update highlights the key dates to watch as the policy support is phased out, in particular the end of the furlough scheme on 31 st October and the winding up of a cluster of other measures …
24th July 2020
The coronavirus crisis is a new type of recession, but all the normal reasons why business investment recovers slowly from downturns still apply and the uncertainty about Brexit is an additional drag. The upshot is that business investment will lag behind …
23rd July 2020
The Office for Budget Responsibility (OBR) today sent a clear message to the government that regardless of the speed of the recovery, the government debt to GDP ratio is on an unsustainable path. Even so, we suspect that soaring debt levels will be …
14th July 2020
One consequence of the new policies announced by the Chancellor last week is that the UK will soon enter a period of deflation. But this will be the good form of deflation, which is temporary, boosts real incomes and incentivises people to spend, rather …
13th July 2020
A surge in the money supply has piqued fears of a leap in inflation. But in our view, there is little chance that this expansion of the money supply, driven almost entirely by quantitative easing, will lead to inflation because demand is very weak. There …
9th July 2020