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The £30bn (1.4% of GDP) of extra measures announced today by the Chancellor may go some way to speeding up the economic recovery from the coronavirus crisis and limiting the long-term hit to unemployment. But we still doubt that GDP will return to its …
8th July 2020
Some indicators suggest the UK is lagging behind other countries in the race to recover from the coronavirus, and it faces some additional hurdles which could slow it down even more. That’s why we expect UK authorities to keep fiscal and monetary policy …
7th July 2020
Given the success of the government’s job furlough scheme and the signs of a strong initial rebound in economic activity we now think that the unemployment rate will peak later, in June 2021 rather than in July 2020, and at a lower rate of 7%, …
2nd July 2020
With further fiscal support likely to be unveiled at some point in the next few weeks, the government appears willing to sustain the fiscal stimulus into the years ahead rather than lurch towards austerity as it did after the Global Financial Crisis. This …
29th June 2020
If the behaviour of Samuel Pepys after the Great Plague of 1665/66 is anything to go by, then people will be willing to return to offices, shops, pubs and theatres surprisingly quickly once the coronavirus crisis subsides. So as long as the virus is …
22nd June 2020
We think today’s Monetary Policy Committee (MPC) decision to keep rates on hold at +0.10% and increase Quantitative Easing (QE) by £100bn is unlikely to be the last act of policy loosening. And while we wouldn’t rule out the Bank of England cutting …
18th June 2020
Other forecasters were slow to appreciate the depth of the recession. Since then, the consensus GDP forecast has been revised down close to our own. But we think other forecasters are still underestimating how weak inflation will be, and how much further …
The latest data highlighted a diverging trend between the two main measures of unemployment. Neither measure is perfect, but at least the claimant count is timelier than the ILO measure. Until the ILO measure catches up, we are putting more weight on the …
17th June 2020
A continued return of risk appetite as the economy slowly recovers from the coronavirus crisis will boost equities and the pound so long as there is a compromise on Brexit. But with the Bank of England likely to keep interest rates close to zero and do …
16th June 2020
We assume that a slim trade deal will be agreed by the end of this year and that a big step change in the UK-EU relationship will be avoided. But with the chances of a “no extension, no Brexit deal” rising, the risks to the UK’s economic recovery are on …
15th June 2020
The huge amount of borrowing undertaken by firms in the last three months is reassuring in the sense that businesses are getting the cash they need to make ends meet. But some firms won’t be able to cope with the higher debt burden. And those that can …
11th June 2020
Unlike the period after the Global Financial Crisis (GFC), we doubt that the government will immediately turn to a prolonged period of austerity after the surge in the debt to GDP ratio during the coronavirus crisis. This suggests the economy won’t have …
10th June 2020
The bulk of the leap in the saving rate will be reversed as the economy opens and people start spending again but the desire to hold more savings post-lockdown combined with lower incomes will weigh on consumption over the next few years, prolonging the …
The government’s furlough scheme has prevented the UK economy from being engulfed by a tsunami-like first wave of unemployment. But a second wave will probably come once the reduction in the generosity of the scheme in August forces businesses to decide …
21st May 2020
The recent weakness in the pound has been driven by renewed concerns about Brexit and the prospect that the Bank of England will have to cut interest rates below zero to support the economy. As a result, there could be some upside for the pound if the UK …
19th May 2020
With the Office for Budget Responsibility’s (OBR) government borrowing forecasts only including the cost of just one of the extra four months of the Job Retention Scheme and no medium-term scarring effects of the crisis, borrowing is likely to end up …
14th May 2020
We think it is far more likely that the Bank of England will use further rounds of Quantitative Easing (QE) to boost demand rather than cut interest rates into negative territory as the market is suggesting. Over the past few days money markets in the UK …
While the Monetary Policy Committee (MPC) left its interest rate and quantitative easing (QE) policies unchanged this morning, it implied that an expansion of QE is imminent. This leaves our existing call that the MPC would expand QE by around £100bn at …
7th May 2020
The Bank of England has been expanding its balance sheet during the coronavirus crisis mainly to fulfil its role of lender of last resort in a liquidity crisis. That will probably remain the focus for a while yet. But at some point, the Bank may change …
6th May 2020
We estimate that banks will have to absorb about £50bn of loan losses from corporate and household defaults as a result of the coronavirus crisis. If anything, the risks are for even bigger losses approaching the £80bn written off during the Global …
29th April 2020
With the reopening of the economy to be governed by the extent to which the coronavirus is brought under control and the burden being placed upon the NHS, there is still a lot of uncertainty about how long the current restrictions will remain in place and …
The shape of the economic recovery from the coronavirus crisis mainly depends on the spread of the virus, the effectiveness of the policy response and the extent to which consumers and businesses change their behaviour. This Update sets out how and why …
27th April 2020
It has become clearer to us that the economic legacy of the coronavirus crisis will last a number of years. Our new forecast is that the economy will be about 5% smaller (£100bn) at the end of 2022 than would have been the case if coronavirus didn’t …
14th April 2020
We won’t know until the future whether or not the Bank of England has launched helicopter money as it depends if the rise in the money supply is temporary or permanent. But more important is whether it leads to much higher inflation. The markets don’t …
9th April 2020
The number of business insolvencies could reach the same level as in the Global Financial Crisis over the next few years, keeping the unemployment rate high and holding back the economic recovery. The number of business insolvencies will be a key …
8th April 2020
Brexit is clearly not a priority right now. But with negotiations shelved due to the coronavirus, it is becoming increasingly likely that the government agrees to extend the transition period beyond 31 st December 2020. This is now our baseline …
7th April 2020
Reports of a further leap in new claims for Universal Credit suggest that the government support designed to keep people employed isn’t working and that the unemployment rate could jump from 3.9% in January to about 5.5% in April. Our forecast that the …
1st April 2020
We doubt that the coming explosion in government borrowing or the accompanying rise in government debt will push up gilt yields. Low growth, low inflation, and low interest rates mean that they gilt yields will remain close to their all-time lows …
31st March 2020
Most of the high frequency indicators we track show how the coronavirus lockdown is significantly reducing activity. The exception is the activity of watching TV, which is surging. This too, of course, is a symptom of the plunge in normal economic …
The collapse in economic activity, spike in unemployment and slump in oil prices look set to push inflation down from 1.7% now to around 0.5%, with the risk that inflation falls to, or below zero. Either way, if activity and oil prices recover in …
30th March 2020
This coronavirus recession isn’t anything like a “normal” one. The fall in output will be sudden and vast. The huge policy response means the recovery should be much quicker than normal too. But the scale of the economic dislocation and the risk that the …
27th March 2020
This Update was originally sent to clients as a Rapid Response immediately after Rishi Sunak’s press conference on 26 th March. The government’s measures to support the self-employed during the coronavirus crisis will help prop up incomes and employment. …
26th March 2020
If the Bank of England is going to build on the unprecedented policy support it has unleashed in recent weeks to counteract the economic effects of the coronavirus, it won’t be because of concerns over how far inflation or GDP will fall. Instead, it would …
The coronavirus crisis means that the government’s budget deficit will soon explode to above the 10% of GDP peak seen in the financial crisis and debt could spiral from about 80% of GDP now to over 100%. However, if we are right in thinking that the …
25th March 2020
The UK’s current account deficit is the main reason why the pound has fallen by more than other currencies against the US dollar over the past fortnight. The same was true in the Global Financial Crisis, and the pound never really recovered. But the pound …
The enormous fall in GDP that we have pencilled in for Q2 as a result of the economic effects of the coronavirus implies that the unemployment rate will spike over the next few months and that incomes will be hit hard. However, the short duration of the …
24th March 2020
This Update was originally sent to clients as a Rapid Response immediately after Rishi Sunak’s press conference on 20 th March. The Chancellor’s announcement this afternoon means that the government’s coronavirus-fighting economic package is now worth …
20th March 2020
The high frequency indicators we track show that the spread of the coronavirus is already having an impact on the economy. There is no doubt these activity indicators will deteriorate further as the government’s measures to contain the virus become …
The big package of measures announced by the Bank of England today in its second emergency meeting in just over a week is designed to ease the stress in the financial markets and to support the recovery once the full economic hit from the coronavirus has …
19th March 2020
This Update was originally sent to clients as a Rapid Response immediately after Rishi Sunak’s speech on 17th March. While the large package of measures aimed to counter the economic effects of the coronavirus unveiled by the government today probably …
17th March 2020
The Bank of England can’t prevent the economy from falling into recession. But like the Fed, we think it will soon throw everything in its policy arsenal at the coronavirus crisis to try to prevent the markets from seizing up and to reduce the risk of a …
We now think that the economic effects of the coronavirus will result in GDP falling by around 15% q/q in Q2, that the Bank of England will soon launch £150bn of quantitative easing, and that the government will need to act as a backstop for banks and …
While it is a given that GDP growth will slow sharply over the next few months as the economic consequences of the coronavirus are felt, some sectors will weather the storm better than others. We expect the recreation, transport and motor vehicles sectors …
12th March 2020
The Bank of England’s 50bps emergency interest rate cut, from 0.75% back to the record low of 0.25%, and other measures aimed to support loans to businesses announced this morning is the first salvo in a day of coordinated action designed to cushion the …
11th March 2020
As central forecasts for GDP growth are less useful during times of high uncertainty, this Update illustrates some alternative scenarios of how the coronavirus could influence the UK economy based on the government and households using different measures …
10th March 2020
The fall in gilt yields into negative territory on Monday implies that investors think that the Bank of England will cut interest rates to emergency levels and keep them there for the foreseeable future. We expect a 25bps cut to 0.50% soon. But as the hit …
This checklist helps clients keep track of the key economic and public finances forecasts announced during the Chancellor’s Budget speech at 12.30pm on Wednesday 11 th March and to provide some instant context. We will send a Rapid Response and a Focus …
The Bank of England has made it clear that policy action to cushion the economy from the coronavirus is on its way, the only questions are what, how much and when. In the face of today’s meltdown in the financial markets, the Bank may be forced to act …
9th March 2020
In a change to our previous forecast, we now think that the economic effects of the coronavirus will result in GDP growth slowing to just 0.7% this year and will soon prompt the Bank of England to cut interest rates from 0.75% to 0.50%. That said, we …
3rd March 2020
In light of the accelerating spread of the coronavirus – and the economic disruption that is likely to follow – we are pulling down our GDP growth forecasts for Q1 and Q2 of this year. Growth is likely to rebound over the second half of the year, but most …
2nd March 2020