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The failure of the Chinese economy to recover promptly from the measures put in place to contain the coronavirus means that world demand growth will be softer than we had anticipated this year, but probably a bit stronger next year. As a result, we have …
27th February 2020
While we are not convinced that capacity in the construction sector will be an immediate restraint on a big public investment splurge, the inner workings of the government could lessen the amount of money spent. So although a big fiscal stimulus is still …
25th February 2020
We think that the construction sector has the capacity to deliver an increase in public sector investment of around £50bn over the next five years if it is phased in gradually. Unless capacity increases significantly, the government’s manifesto plan to …
24th February 2020
When faced with the choice of deciding whether to impose higher import tariffs on goods (exposing consumers to higher inflation) or lower ones (exposing firms to greater competition), the government’s latest tariff proposals suggest it has plumped for the …
18th February 2020
While the weakening in the global economy has reignited a downside risk to the UK economy, at the moment we don’t think it will derail the recovery in domestic activity that appears to be in train. Around the turn of the year both we and the MPC took …
17th February 2020
We had already expected something big on fiscal policy in the Budget. But the change in Chancellor increases the chances that new, less restrictive fiscal rules are announced, and that government policy boosts the economy by more over the next few years …
14th February 2020
This Update was originally sent to clients as a Rapid Response immediately after the announcement that Sajid Javid was being replaced as Chancellor by Rishi Sunak at 12pm on 13 th February 2020. The unexpected resignation of Sajid Javid as Chancellor and …
13th February 2020
It’s possible that consumer spending stagnated or even fell outright in Q4. But this is not too worrying as stronger growth in incomes, a fall in uncertainty and a rise in confidence should lead to a rebound in consumer spending this year. Consumer …
5th February 2020
Much depends on if and when the outbreak of coronavirus in China is brought under control. But as it stands at present, the effects on the UK economy have probably been negligible. Our China Economics service is the place to look for analysis of the …
3rd February 2020
Even when the UK leaves the EU tonight, the shape of its future relationship with the EU is still very uncertain. We suspect it will eventually have a more distant “Canada, plus, plus” type relationship with the EU. While that will probably have a …
31st January 2020
The MPC kept interest rates on hold at 0.75% today but left the door open to a rate cut in the coming months. Nonetheless, with the economy turning a corner and a big fiscal stimulus approaching, we suspect the next move in interest rates will be up not …
30th January 2020
We have argued for some time that a near-term interest rate cut is a strong possibility. The market has now come around to this view. While the decision is a toss-up, at least until we see the next batch of data, our hunch remains that interest rates will …
15th January 2020
This Update was originally sent to clients as a Rapid Response immediately after the vote in Parliament on 20 th December on Boris Johnson’s Brexit deal. The ease at which Johnson’s Brexit divorce bill passed through Parliament today illustrates the power …
20th December 2019
The confirmation that Andrew Bailey will take over from Mark Carney as Governor of the Bank of England on 16 th March 2020 doesn’t change the outlook for monetary policy. But Bailey will face many challenges during his eight-year term, such as navigating …
Whatever the Brexit drama delivers in 2020, it seems that uncertainty will continue to hold back GDP growth and keep a lid on the pound, interest rates and gilt yields. But looser fiscal policy should generate at least some improvement in GDP growth and …
19th December 2019
The tone of December’s Monetary Policy Committee (MPC) statement and minutes was barely changed from November, indicating that the MPC is content to sit on its hands for the time being. As a result, we remain comfortable with our view that interest rates …
While the majority secured by the Conservatives in the election clears the path to a Brexit deal being passed by 31 st January and fiscal policy being loosened in a Budget in February, the resulting boost to the economy will be restrained by the risk that …
13th December 2019
This Update was originally sent to clients as a Rapid Response immediately after the general election exit poll was published at 10pm on 12 th December 2019. If the exit poll’s estimation that the Conservatives secured a majority of 86 seats in today’s …
12th December 2019
Our election preview contains detailed analysis of the potential impact of the election on the economy and markets. Here we focus on what to watch on Thursday night to get a sense of the result and its implications. When will we know who’s won? The first …
11th December 2019
As the markets have priced in a high chance of this Thursday’s election delivering a Conservative majority there is little immediate upside left for the pound or gilt yields, although equities might still get a boost. There is, however, lots of scope for …
10th December 2019
In view of the wider interest, this Global Markets Update is made available to clients of the UK Markets service as well. A surprise win for Labour at Thursday’s election could be a major shock to UK equity markets. There are few recent examples of an …
6th December 2019
While employment tends to lag changes in economic activity, the labour market figures will be crucial in leading the MPC’s decision about whether to cut interest rates or not in the coming months, even if there is a clear Conservative election victory and …
While a Conservative election win followed by a Brexit deal would boost the economy, the lingering uncertainty generated by Boris Johnson’s pledge not to extend the transition period beyond 2020 will limit the rise in GDP growth and will probably negate …
5th December 2019
A victory for Labour in the general election on 12 th December would probably cause the pound to slide from $1.29/£ to around $1.20/£. But the prospect of a softer Brexit, or even no Brexit at all, would limit the downside posed by some of Labour’s …
22nd November 2019
The Labour Party’s manifesto contains several measures which, if implemented, would have a significant negative effect on UK equites. A surprise Labour win could send UK equities tumbling, despite a softer Brexit. Labour’s manifesto is one of the most …
Labour would probably borrow a lot more than the Conservatives if it won the election, but we doubt gilt yields would soar. Labour’s fiscal plans wouldn’t bring debt sustainability into question, inflation expectations are unlikely to leap and relatively …
20th November 2019
November’s “Black Friday” boost to retail sales volumes will actually show up in December’s retail sales figures this year. More importantly, consumers may not be in the mood to spend freely over the Christmas period. As a result, retailers may find just …
The lessons for the UK from the election of a Labour government in New Zealand in 2017 are that businesses and financial markets will probably put more weight on policies that could restrain economic growth than the prospect of much looser fiscal policy. …
18th November 2019
If the Conservative Party wins an outright majority in the upcoming general election on 12 th December, as polls suggest is the most likely outcome, there is potentially significant upside for UK equities. Since the 2016 referendum, UK mid- and large-cap …
11th November 2019
The Monetary Policy Committee’s (MPC) dovish shift at its November meeting leaves the Committee unsure in which direction the next change in interest rates will be. As well as softening its language on the chances of rate hikes if there were a Brexit …
7th November 2019
With the Conservatives and the Labour Party now competing on fiscal profligacy rather than fiscal prudence, it is unsurprising that the Chancellor Sajid Javid announced today a full rewrite of the fiscal rules. But the new rules still allow a big fiscal …
This Update clarifies the tweaks to our forecasts for the economy and the financial markets triggered by the delay to Brexit to 31 st January and the recent changes to our forecasts for the global financial markets. Although the numbers are slightly …
5th November 2019
With England and South Africa battling for the right to lift the Webb Ellis Cup in the Rugby World Cup final this weekend, we’ve been pondering which of the two economies would come out on top in a head-to-head, while we think England will take the …
31st October 2019
A general election on 12 th December may seal the fate of Brexit but could also have some other important implications. The economy and financial markets may either have to cope with a combination of a hardish Brexit and business friendly policies under …
29th October 2019
The weakness in business investment since the EU referendum has been concentrated in IT & machinery, transport and non-residential buildings so those areas may enjoy the biggest rebound if there is a Brexit deal, but they would also continue to suffer the …
This Update was originally sent to clients as a Rapid Response immediately after the vote in Parliament on whether to hold a general election. Although Parliament tonight voted against holding a general election, it seems likely that MPs will soon change …
28th October 2019
The political benefits of Boris Johnson’s Brexit deal may also prove to be its economic downsides. If the deal is eventually passed in its current form there would effectively still be a chance of something like a no deal Brexit in December 2020. If that …
24th October 2019
This Update was originally sent to clients as a Rapid Response immediately after the votes in Parliament on 22 nd October on Boris Johnson’s Brexit deal. Tonight’s votes in Parliament on Boris Johnson’s Brexit deal suggest that Brexit will probably be …
22nd October 2019
This Update analyses the key Brexit events in Parliament this week and highlights at what point we would be able to conclude that a Brexit deal is either done or dead. As such, the next week or so will be pivotal in determining whether the pound takes …
21st October 2019
This Update was originally sent to clients as a Rapid Response immediately after the vote on 19 th October on Boris Johnson’s Brexit deal. The decision by Parliament to essentially postpone a meaningful vote on Boris Johnson’s Brexit deal until after a …
19th October 2019
This Update was originally sent to clients as a Rapid Response immediately after the announcement on 17 th October that the UK and EU had agreed a Brexit deal. If the Brexit deal agreed by the EU and UK earlier today passes through Parliament, then there …
17th October 2019
If a Brexit deal is signed and ratified then sterling could rise further over the next few weeks or months, from $1.28 to $1.35 (€1.17). If interest rates were then to rise, sterling could hit $1.40 (€1.22) in 2021. At the end of July, when the chances of …
16th October 2019
A Brexit deal is still unlikely, but it would remove much of the uncertainty that has caused firms to hold off investment projects and consumers to rein in their spending, and would therefore result in GDP growth, interest rates, the pound and bond yields …
15th October 2019
The government’s latest no deal tariff plans released yesterday provide us with some reassurance that although there will be some hit to the economy from higher tariffs it won’t be as big as most feared. Although there’s little the UK can do to prevent …
9th October 2019
In a change to our previous forecast, we now think there’s a fair chance that the Bank of England will cut interest rates if Brexit is delayed. That means interest rate cuts now feature in two of our three Brexit scenarios and would only be avoided if …
8th October 2019
When put on a like-for-like basis, the Bank of England’s assumptions for how weak the economy would be in the 12 months after a no deal Brexit are not that different to our own. And both we and the Bank think that after a no deal economic growth would …
3rd October 2019
This Update was originally sent to clients as a Rapid Response immediately after the ruling by the Supreme Court on the legality of the Prime Minister’s decision to suspend Parliament until 14 th October. The ruling by the Supreme Court that the Prime …
24th September 2019
The UK has significant financial ties to Hong Kong, and the recession and correction in house prices we are forecasting there will put the territory’s financial sector under pressure. However, only a couple of UK banks are vulnerable. And as they appear …
23rd September 2019
The decision to reform the RPI measure of inflation at some point between 2025 and 2030 could reduce RPI inflation by a little under 1ppt a year. That could give the Government a windfall of about £3.2bn per annum at the expense of bondholders and …
20th September 2019