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Following the 0.1% m/m fall in GDP in March , we now think the economy is halfway towards a recession (two quarters of falling output in a row). (See here .) If GDP was flat in April, May and June, then it would be 0.1% lower in Q2 relative to Q1. We’ve …
13th May 2022
As anticipated, this week’s Monetary Policy Report was the third in a row in which the Bank of England revised up its inflation forecast over the next two years and revised down its GDP forecast. But it was the Bank’s dramatic cuts to its GDP forecast and …
6th May 2022
We understand why our new forecast that interest rates will be raised from 0.75% now to a peak to 3.00% next year has generated a lot of interest among clients. After all, it assumes that rates will peak higher than investors (2.50%) and other analysts …
29th April 2022
The news on the economy was distinctly downbeat this week with evidence of a consumer slowdown mounting (see here and here ) and the IMF predicting that the UK economy will grow by just 1.2% in 2023, the slowest among G7 countries. But that did not stop …
22nd April 2022
If Chancellor Rishi Sunak was hoping that the economy would provide some respite from the political hot waters that he’s found himself in recently then data released over the past week will have come as another blow. First came figures released on Monday …
14th April 2022
The government’s new energy strategy, revealed earlier this week, will do little to reduce the current upward pressure on inflation. The strategy commits to generating 95% of electricity from ‘low carbon’ sources by 2030, with additional targets to ramp …
8th April 2022
The squeeze on real household disposable incomes will hit harder from today. The first day of April brings with it a 54% leap in utilities prices as well as rises in council tax, water prices and many phone contract prices. Government benefits rise too, …
1st April 2022
This week’s Spring Statement felt more like a piece of political theatre than an exercise in supporting the economy. Rishi Sunak’s determination to be remembered as a tax-cutting Chancellor meant that he made a great fanfare about cutting fuel duty for …
25th March 2022
The messages sent by the US Federal Reserve and the Bank of England at their policy meetings this week were very different. While the Fed said it intends to raise interest rates from 0.25-0.50% to 2.75-3.00% by the end of 2023 (see here ), after having …
18th March 2022
The pressure on the Chancellor, Rishi Sunak, to go beyond the £9bn (0.4% of GDP) fiscal package announced in February and shelter households from even higher energy costs in his Spring Statement on 23 rd March has intensified this week. That’s because the …
11th March 2022
As the war in Ukraine has escalated, the upside risks to inflation and the downside risks to activity have increased. The oil price has now risen by around 16% since last Wednesday, leaving it about 25% higher than at the start of February. The UK natural …
4th March 2022
The Bank of England has yet to provide any clues to how Russia’s invasion of Ukraine on Thursday may influence how far and how fast interest rates need to rise. (All our analysis on the conflict is collated on one page of our website. See here .) The …
25th February 2022
Earlier this week brought murmurs of a de-escalation in the Russia/Ukraine border crisis. But tensions seem to have flared up again in recent days. We have no particular insight on the likely outcome, but we can offer some thoughts on the economic impact …
18th February 2022
The further surge in US CPI inflation from 7.0% in December to a 40-year high of 7.5% in January and some hawkish comments by US Fed officials have rattled global financial markets this week, with UK markets being caught in the crossfire. And recent …
11th February 2022
What came through most clearly in yesterday’s Monetary Policy Committee (MPC) statement was the signal that the MPC will act to quash rising cost, price and wage expectations. We unpacked the Bank of England’s February meeting, at which it raised interest …
4th February 2022
Prime Minister Boris Johnson is in a precarious position. With Sue Gray’s (delayed… again) report on ‘Partygate’ due to be published at some point in the next few weeks and the police now conducting a criminal investigation into the scandal, support for …
28th January 2022
While Boris Johnson has survived another week without a formal challenge on his leadership, next week’s publication of the (delayed) report on “Partygate” by Sue Gray may well determine his fate one way or the other. We highlighted in last week’s UK …
21st January 2022
It is striking how quickly the political momentum has shifted. This time last week, Prime Minister Boris Johnson was probably feeling smug about his decision not to ramp up the COVID-19 restrictions in the wake of the Omicron wave. This week, he has faced …
14th January 2022
With the next few months set to bring higher inflation, utility prices and taxes, the pressure on household finances is mounting. That’s prompted headlines about the looming cost of living crisis. In our key calls Update , we outlined the upward revision …
7th January 2022
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
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
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
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
“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
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
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
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
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
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
Truth be told, neither Boris Johnson’s nor Rishi Sunak’s speeches to the Conservative Party Conference this week contained anything new on the economic front. Instead, the most notable development came in an interview to the BBC in which PM Johnson …
8th October 2021
Clouds are darkening over the outlook for the UK economy. A combination of broadening shortages, the fuel crisis, less fiscal support and the risk of higher interest rates will make it difficult for the UK economy to perform as well as its European peers. …
1st October 2021
There are two reasons why we now think the Bank of England’s Monetary Policy Committee (MPC) will hike interest rates in 2022 rather than in 2023. First, underlying wage growth and inflation expectations have risen by more than we expected. These are …
24th September 2021
On the back of the surge in inflation from 2.0% in July to 3.2% in August and the blistering increases in wholesale gas and electricity prices, investors are now pencilling in a rise in Bank Rate from 0.10% to 0.25% in Q1 2022 and to 0.50% at the start of …
17th September 2021
The stalling in the economic recovery in July doesn’t mean the recovery is over. But the 0.1% m/m rise in GDP in July revealed on Friday (see here ) does illustrate that the recovery has entered a slower and more challenging phase. To some extent this was …
10th September 2021
For most of the pandemic period, policymakers have been worrying that there will be too much unemployment. But now the fear is that there aren’t enough workers to fill all the jobs! Admittedly, there are still some lingering concerns that when the …
3rd September 2021
The list of anecdotal reports of labour and product shortages has grown ever longer in the past week and now includes McDonald’s milkshakes and various items at Greggs. These add to the broadening range of sectors, such as hospitality, wholesale and …
27th August 2021
July’s fall in CPI inflation from 2.5% in June to 2.0% was the first time since March that inflation has surprised the consensus on the downside. But it probably won’t have provided the Monetary Policy Committee (MPC) with much relief, for two reasons. …
20th August 2021
The GDP figures for June, which showed that the economy grew by 1.0% m/m after the 0.6% m/m rise in May, was an impressive result given the surge in COVID-19 cases in that month. (See here .) But we warned a couple of weeks ago that the “pingdemic”, which …
13th August 2021
We learnt three things from this Thursday’s Bank of England policy decision and were left in the dark on two key issues. As a result, some of our forecasts for money market rates and gilt yields have changed. What we learnt First, the Bank of England …
6th August 2021
This week brought further signs that the “pingdemic” weighed on economic activity in July. (See here .) The number of people having been asked by the NHS App or Test & Trace system to self-isolate has almost doubled in the past three weeks, reaching 1.3 …
30th July 2021
With a whopping 1.1 million people having been asked by the NHS App or Test & Trace system to self-isolate in the week ending 14 th July, the “pingdemic” has weakened the near-term outlook for activity. (See Chart 1.) After all, the result of some workers …
23rd July 2021
In response to the jump in CPI inflation from 2.1% in May to 2.5% in June (see here ) and yet more signs that the labour market is bouncing back (see here ), two members of the Monetary Policy Committee (MPC) this week indicated that policy will need to …
16th July 2021
Supply shortages were once again evident in the final PMIs released this week. June’s manufacturing PMI showed supplier delivery times lengthened still further and the measures of prices paid by firms rose to their highest levels since the surveys began …
9th July 2021
It’s understandable that the start of the winding up of the furlough scheme on 1 st July (when firms had to start paying 10% of the wages of their furloughed workers) has caused some concern. After all, even after taking into account the cumulative cost …
2nd July 2021
The evolving outlook for monetary policy on the other side of the Atlantic has once again been partly to blame for recent movements in UK markets. Like in the US, the yield curve flattened after the Fed became more hawkish at its May meeting, although …
25th June 2021
We covered the growing upside risks to our inflation forecast in last week’s UK Economics Weekly . (See here .) But after the jump in CPI inflation from 1.5% in April to 2.1% in May, we now think CPI inflation will rise to a peak of 2.9% later this year …
18th June 2021
Our big non-consensus call that the Bank of England won’t tighten policy until 2024 rather than in 2022 as the markets have assumed is based on our forecast that CPI inflation won’t stick above the 2% target until late in 2023. That view is being …
11th June 2021
It is not just the weather that has hotted up in recent days, so too have the signs of a rapid economic rebound in Q2. The rise in May’s composite PMI to a record high was the latest bit of good news. And while the PMI might overstate the rebound, it is …
4th June 2021
As anyone who has tried to find a builder recently or even do a DIY project will know, the construction industry is booming. In March output in the sector as a whole was 2.3% above its pre-crisis level. But this masks some large divergences within the …
28th May 2021
In a week when we found out that employment rose in the three months to March (see here ), CPI inflation doubled to 1.5% in April (see here ), retail sales surged in the same month (see here ) and the flash composite PMI jumped to a record high in May …
21st May 2021
