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November’s strength unlikely to have lasted The healthy rise in consumer credit in November adds to evidence that economic activity strengthened in the middle of Q4. But that feels like a distant memory now. Against a backdrop of surging COVID-19 cases, …
4th January 2022
Less momentum going into Q4 Today’s release indicates the economy had a bit less momentum in Q3 than we had previously thought. And, with early signs the Omicron variant has hit activity, growth is sure to have slowed further in Q4. Upward revisions to …
22nd December 2021
Borrowing overshoot could continue in the coming months The rise in government borrowing in November suggests the public finances could be already starting to feel the strain from higher spending on NHS Test & Trace and booster vaccines. Now that tighter …
21st December 2021
Twelve months ago we said that 2021 would bring a “quicker and fuller” recovery, still-loose monetary policy and that the pandemic wouldn’t leave a large permanent dent in the economy and the public finances. (See here .) So we have managed to notch a …
17th December 2021
Black Friday boost, but Omicron threatens Christmas for retailers The strong growth in retail sales in November feels like a bit of a consolation prize for retailers who are now once again facing a difficult Christmas in light of the rapidly worsening …
The surprise hike in interest rates by the Bank of England today, from 0.10% to 0.25%, could just be a case of the Bank moving a bit quicker than expected, but the hawkish tone of the commentary suggests to us that it is now also willing to move a bit …
16th December 2021
Omicron already hitting services hard The fall in the composite PMI in December doesn’t come as much of a surprise given the surge in cases of the Omicron variant of COVID-19. But it was much bigger than expected, and shows that caution among businesses …
Inflation close to being further above the target than ever before Inflation is close to being further above the target than at any point since the UK started targeting inflation in October 1992. This makes tomorrow’s interest rate decision look closer, …
15th December 2021
Reports that the surge in Omicron COVID-19 cases is causing some people to stay away from work, schools, pubs and restaurants increases the downside risks to our December and January GDP forecasts. But the big step down would happen if there were another …
14th December 2021
Furlough fears fading, COVID-19 concerns climbing Even though the fallout after the furlough scheme was smaller and shorter than the Bank of England had feared, concerns over the deteriorating COVID-19 situation will probably prevent it from raising …
The government’s recently-imposed “Plan B” COVID-19 restrictions mean there is a good chance that the economy contracted in December. If the pressure on the NHS increases, restrictions might be tightened further, implying substantial downside risks to Q1 …
10th December 2021
Touch-and-go whether economy grows or contracts in December The news that the economy was hardly growing at all before Omicron means it is touch-and-go whether it will grow a bit in December or shrink a bit. Against that background, we doubt the Bank of …
A hike this month does not look likely, but is possible Omicron is unlikely to prompt more QE or negative interest rates Lift off to occur early next year, but rates probably won’t rise as far as investors expect We wouldn’t completely rule it out, but we …
9th December 2021
While the emergence of the Omicron COVID-19 variant has increased the downside risks to our GDP forecasts, it has arguably increased the upside risks to our CPI inflation forecasts. The transmissibility, severity and capacity for Omicron to escape …
7th December 2021
Omicron is reducing socialising Just one week after the emergence of the Omicron COVID-19 variant there are lots of anecdotal reports of Christmas parties being cancelled and some tentative evidence that activity has softened. In the week before the …
3rd December 2021
The latest data suggest that the upward pressure on wage growth from labour shortages has a bit further to run. Admittedly, the discovery of the Omicron variant has clouded the near-term outlook for wages and the labour market, with higher virus …
30th November 2021
The restrictions announced by the government on Saturday in response to the new Omicron COVID-19 variant increase the downside risks to our GDP forecasts and the chances that the Bank of England delays increasing interest rates until next year. And …
29th November 2021
Omicron darkens the outlook for spending The rise in consumer credit in October adds to evidence that economic activity fared well at the start of Q4. But that no longer offers much comfort in light of the discovery of the new Omicron variant. While much …
For most of this week our Europe economics team have been re-evaluating their forecasts due to the prospect of more COVID-19 restrictions on the continent. We weren’t. That’s because a combination of higher infections since the summer, high vaccination …
26th November 2021
Brexit is undoubtedly a factor behind the slower post-pandemic recovery in UK exports relative to elsewhere. But it doesn’t appear to be the sole reason. Instead, pandemic effects may explain at least some of the shortfall. That suggests some of the …
24th November 2021
Signs of higher cost inflation add to Bank’s inflation concerns The composite activity PMIs hardly changed in November as the economy held up fairly well despite continued supply disruptions and shortages. Meanwhile, signs that price pressures continued …
23rd November 2021
“Given these two-sided risks – weaker activity and higher inflation – the labour market story really is the crucial part of it, and we haven’t yet seen enough of that story, post furlough scheme.” ”Don’t forget what our framework is. It’s about inflation. …
19th November 2021
Rebound in retail sales will give Bank of England confidence The rebound in retail sales in October adds to the evidence that activity held up well in October and will raise expectations that the Bank of England will hike interest rates from 0.10% to …
Chancellor unlikely to get much more help from the economy, for now The winding down of the furlough scheme helped to bring down public sector net borrowing in October. But we doubt that the public finances will get much help from faster GDP growth in the …
Bank unlikely to ignore this leap in inflation When coupled with yesterday’s decent labour market release, the bigger-than-expected leap in CPI inflation in October makes an interest rate hike in December even more likely. That said, we still think the …
17th November 2021
Market remains tight after the end of furlough This labour market release is the first of two before the Bank of England’s December policy meeting and it suggests that the labour market remained tight after the furlough scheme ended. If the story is …
16th November 2021
On the face of it, the GDP data released this week suggest that the recovery is ticking along quite nicely. Indeed, the data showed that the economy picked up some pace at the end of Q3, providing a decent platform for the current quarter. (See here .) …
12th November 2021
With speculation rising that the UK will trigger Article 16 of the Northern Ireland Protocol, the big risk is that relations between the UK and the EU sour to such an extent that parts of the whole UK/EU Brexit deal unravel. Even if things do not …
11th November 2021
New-found momentum will soon fade The economy regained some momentum in September, but continued shortages and the drag on real incomes from higher utility prices probably mean it will soon fizzle out. That’s one reason why we doubt that the Bank of …
We’ve been warning for a while that CPI inflation would rise further than most people expect and have recently pushed our own forecast even higher. We now think CPI inflation will rise from 3.1% in September to 4.0% in October and to almost 5.0% in April …
10th November 2021
The divergence between the quarterly and the monthly measures of GDP have left it unclear whether the economy is still languishing at about 2.0% below its pre-pandemic level or if it is nearing that milestone. But regardless of how close the economy is to …
9th November 2021
Yesterday’s 1.5% weakening in the pound against the US dollar to $1.35 and the 20 basis point decline in 2-year gilt yields to 0.43% show that the markets are reassessing the Bank of England’s inflation fighting credentials. And who can blame them. At the …
5th November 2021
By leaving interest rates at 0.10% and continuing its QE asset purchases, the Monetary Policy Committee (MPC) didn’t set off any early fireworks today. But it did throw on the bonfire the markets’ expectations that interest rates will rise to 1.0% by the …
4th November 2021
The Chancellor’s new fiscal rules could help to convince voters and investors of the Conservative Party’s fiscal discipline. But with eleven rules having come and gone in the past seven years and with no less than nine new fiscal indicators unveiled in …
3rd November 2021
Two key points from the Budget Budget day produces a flurry of analysis but the most interesting reflections tend to come once the dust has settled and everyone has had time to digest the documents. Two points stand out to us. The first relates to the …
29th October 2021
Further signs of stagnating spending growth The tepid rise in consumer credit lends support to our view that economic growth slowed to little more than a crawl in September. Against the backdrop of rising COVID-19 cases and higher inflation, we expect …
Investors may be right that the MPC will hike rates in November or December But we think they are wrong to price in rates rising as far as 1.25% by end-2022 Our new forecast is for rates to rise to 0.50% by February, but no higher next year We now think …
28th October 2021
This Budget was perhaps more notable for what the Chancellor didn’t do rather than what he did. The OBR handed Rishi Sunak a significant upgrade to its forecasts for the public finances but, while the Chancellor spent some of the windfall a substantial …
27th October 2021
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 27 th October and to provide some instant context. We will send a Rapid Response and a Focus …
25th October 2021
Markets and monetary policy The markets easily shook off this week’s news that CPI inflation fell back in September, from 3.2% to 3.1%, and continued to price in some rapid rises interest rates. That makes sense when everyone knows that CPI inflation is …
22nd October 2021
Building price pressures raises chances of near-term interest rate hike The fifth consecutive fall in retail sales in September, together with signs that non-retail spending was also weak, supports our view that the economic recovery slowed to a crawl …
Despite the improving outlook for the public finances, the rumours that the Chancellor will set himself some fairly stringent fiscal rules suggest that there’s not going to be a net giveaway in the Budget and Spending Review on Wednesday 27 th October. …
21st October 2021
Good news for the Chancellor ahead of the Budget September’s public finances figures mean that the Chancellor will be able to boast in next Wednesday’s Budget that he has reduced government borrowing much quicker than expected. But we suspect he’ll set …
The lull before the storm The dip in CPI inflation in September feels a bit like the lull before the storm as we expect inflation to jump to close to 4.0% in October and to between 4.5% and 5.0% by April next year. As such, the fall in September probably …
20th October 2021
Overview – The UK economy is experiencing a taste of stagflation. This won’t be anywhere near as severe or as persistent as in the 1970s. But for the next six months, the worsening product and labour shortages will put the brakes on the economic recovery …
19th October 2021
There is an outside risk that the UK could face some limited short-term rationing of electricity this winter if weather conditions were to be unfavourable. This risk isn’t yet significant enough to factor into our forecasts. But if the supply of …
18th October 2021
Perhaps the most significant event of the past week came as markets opened on Monday morning. In response to two hawkish interviews by members of the Monetary Policy Committee (MPC) in the weekend papers – one by Governor Bailey and another by Michael …
15th October 2021
Shortages may now be biting harder The 0.4% m/m rise in GDP in August confirms that the rapid gains in output, which in just 16 months lifted GDP from being 25.1% below its February 2020 pre-pandemic peak to 0.8% below, are now behind us. And shortages, …
13th October 2021
Labour shortages seem to be worse and more widespread than we had expected. Although the end of the furlough scheme in late September may ease some of the shortages, we doubt it will plug all the holes. As such, we now think labour shortages are unlikely …
12th October 2021
