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As the plunge in employment in Q1 is probably a response to the recession last year, employment will probably soon rebound now that the economy is growing again. The real risk is a rebound in job vacancies prevents wage growth from falling as fast and as …
16th April 2024
Our analysis shows that for CPI inflation to get stuck above 2.0% it would require oil prices and UK wholesale gas prices to rise to $110 per barrel and 150 pence per therm respectively. And for CPI inflation to return to 5.0%, it would require increases …
15th April 2024
Ben Bernanke didn’t pull any punches in his review of the Bank of England’s forecasting/communications and recommended a full revamp of the Bank’s main forecasting model, using alternative scenarios to express uncertainties rather than fan charts and …
12th April 2024
The Bank of England’s Q1 Credit Conditions Survey provides further evidence that the drag on activity from high interest rates is starting to fade. Looser credit conditions will soon aid the economic recovery. The fall in mortgage rates at the start of …
11th April 2024
Even if the US Federal Reserve leaves its policy rate unchanged for longer than we expect, our forecast that inflation in the UK will be lower than in the US suggests this won’t prevent the Bank of England from cutting rates from 5.25% to 5.00% in June …
The Bernanke review of the Bank of England’s forecasting and communications will probably recommend the Bank illustrates the risks around its forecasts using alternative scenarios rather than fan charts and places greater emphasis on supply and monetary …
8th April 2024
While the number of “green” jobs in the UK rose strongly in 2022, it’s worth noting that green workers were still outnumbered by estate agents! Market forces are facilitating the transition to a greener workforce, but policies to make the labour market …
2nd April 2024
With the Bank of England striking a slightly more dovish tone whilst keeping interest rates at 5.25% and inflation likely to fall further and faster than the Bank expects, we still think a rate cut in June is possible and that rates will fall to 3.00% in …
21st March 2024
We will be discussing whether the next government will move the dial on the economy in a 20-minute online briefing at 3pm GMT on Wednesday 13th March. (Register here .) We doubt the big rise in the minimum wage in April will prevent wage growth from …
11th March 2024
Our view that the Bank of England will become less concerned by the most persistent part of services CPI inflation suggests that it will cut interest rates in the summer, perhaps in June. But the risk is that non-energy intensive services inflation stays …
4th March 2024
A version of this report was originally published as an opinion piece in The Times on 28th February 2024. The government will reportedly unveil an initiative to encourage lenders to offer 99 per cent mortgages in the spring budget. If implemented, it …
28th February 2024
This is an updated checklist which takes into account our latest expectations for the Spring Budget. The checklist helps clients keep track of the key policies and forecasts announced during the Chancellor’s Spring Budget at 12:30pm (GMT) on Wednesday 6 …
The outlook for the UK economy is unlikely to be very different depending on which of the possible combinations of UK Prime Ministers and US Presidents this year’s elections deliver. Even so, there may be some nuances. This Update establishes a framework …
26th February 2024
The news this morning that the unemployment rate is lower than previously thought increases the chances that interest rate cuts start a little later and are slower. After publishing experimental labour market data for the five months to November due to a …
5th February 2024
While leaving interest rates at 5.25% for the fourth meeting in a row today, the Bank of England sent a signal that the next move will be a cut, but it pushed back strongly against the idea that rates will be cut soon or far. Our forecast that inflation …
1st February 2024
Our new Fiscal Headroom Monitor uses a simplified version of the Office for Budget Responsibility’s (OBR’s) model to estimate how changes in market interest rate expectations and gilt yields are influencing the scope for the government to announce new …
25th January 2024
History suggests that when one Monetary Policy Committee (MPC) member votes to cut interest rates, a majority of the nine members will agree about two meetings later. There have been 14 turning points in Bank Rate since the MPC’s inception in 1997, by …
23rd January 2024
The Bank of England’s Q4 Credit Conditions Survey suggests the worst of the drag on economic growth from higher interest rates is fading. That suggests an economic recovery will begin later this year. The net percentage balance of banks’ supply of …
18th January 2024
While sterling has outperformed other G10 currencies amid the dollar sell-off over the past couple of months, we expect it to reverse its gains against the greenback as short-term Gilt yields edge lower. So far this year, the pound has held up well …
16th January 2024
We doubt the recent resilience of business investment in the face of higher interest rates will last. Instead, we think a drop back in business investment will contribute to the economy continuing to stagnate in the first half of this year and a modest …
15th January 2024
The lagged effects of the weak economy and high interest rates may mean that loan default rates rise in the coming months. But the prospect of interest rate cuts later this year will mean they won’t rise much. Higher interest rates and the weak economy …
10th January 2024
In a change to our previous forecast, we now think that the first interest rate cut from the Bank of England will happen in June this year rather than in November. We still think that interest rates will be reduced from 5.25% now to 3.00% in 2025. That’s …
3rd January 2024
The Bank of England sprung no surprises, leaving interest rates at 5.25% for the third time in a row and pushing back against the prospect of near-term interest rate cuts. While the recent soft wage and inflation data mean the Bank may not wait as long as …
14th December 2023
Even though we expect the economy to be weaker than the consensus in 2024, we think that lingering constraints on domestic supply will prevent wage growth and services CPI inflation from falling quite as fast as is widely expected. As a result, we think …
7th December 2023
In this Global Economics Update , we describe eight of the biggest risks to our economic forecasts for 2024. The unusual nature of this cycle and uncertainties surrounding the transmission of monetary policy mean that the biggest risks relate to central …
30th November 2023
This is an updated checklist which takes into account our latest expectations for the Autumn Statement. The checklist helps clients keep track of the key policies and forecasts announced during the Chancellor’s Autumn Statement at 12.30pm (GMT) on …
20th November 2023
While wage growth will continue to slow, the smaller-than-expected fall in September supports our view that the Bank of England will keep rates on hold at their current level of 5.25% until late in 2024. Wage growth eased more slowly than we and most had …
14th November 2023
We’ll be discussing the latest Fed, ECB and Bank of England policy decisions in a 20-minute Drop-In webinar at 3pm GMT today. (Register here .) The Bank’s decision to leave interest rates at 5.25% for the second time in a row and to double down on the …
2nd November 2023
We suspect that more weakness in the housing market will weigh on real GDP by further reducing residential investment and consumer spending. This is one reason why we think the economy is close to a mild recession, if it isn’t already in one. Higher …
25th October 2023
We'll be discussing the implications of the end of the ultra-low interest rates era and the rise in r* in an online Drop-In at 12:30 GMT on Tuesday 31st October. (Register here .) As our new higher estimate of the real neutral interest rate, or r*, for …
19th October 2023
There is a growing body of evidence that suggests wage pressures are past their peak, but it’s not clear how quickly wage growth will slow. The gradual loosening in the labour market and the experience in the US suggests that UK wage growth may ease only …
18th October 2023
Higher interest rates weighed sharply on households’ demand for mortgages in Q3 and banks expect demand for mortgages to fall further in Q4. This is a clear sign that higher interest rates are working. And our forecast that mortgage rates will stay above …
12th October 2023
The sell-off in bond markets has taken a breather today, helped in part by softer data on the US labour market. However, the scale of the moves over the past week has invoked comparisons to previous financial crises that have been caused by sharp moves in …
4th October 2023
While some measures of optimism have been improving, the majority of the survey evidence suggests the economy is weakening and the chances of the mild recession we have been forecasting have increased. The 0.5% m/m fall in real GDP in July and the decline …
The sharp slowdown in broad money growth since late last year suggests that higher interest rates are working by reducing households’ and firms’ demand for borrowing, which should lead to softer activity and lower inflation. This supports our view that a …
26th September 2023
We think that both the Fed and the BoE are finished hiking interest rates and will cut by more than investors are discounting over the next couple of years. We also expect the US and UK economies to tip into mild recessions before long. These similarities …
21st September 2023
Note: We’ll be discussing September’s Fed, ECB and Bank of England policy decisions in a Drop-In at 3pm BST today. Register here to join. The surprise decision by the Bank of England to leave interest rates unchanged at 5.25% today probably means that …
The news that UK Prime Minster Sunak is set to further dilute the government’s climate policies demonstrates that when the political going gets tough, climate policies are the first to fall by the wayside. From a macro perspective, the biggest risk is …
20th September 2023
The recent rise in oil prices to $90 per barrel means CPI inflation is likely to rise from 6.8% in July to 7.1% in August, but it won’t prevent inflation falling to the 2% target by the middle of next year. Even if oil prices climbed to $100 per barrel, …
8th September 2023
The UK government’s failure to award any new offshore wind-power contracts in its latest procurement round ultimately stems from bean-counting stinginess and is nothing that a lot of extra government investment won’t fix. But with the days of ever-cheaper …
The relaxing of planning rules governing new onshore wind installations in England marks a shift away from the de facto ban that was put in place in 2015. But raising the bar for objections to land-based turbines won’t put an end to green-related …
6th September 2023
The news that the UK economy may now be 1.5% bigger than its Q4 2019 pre-pandemic size, rather than 0.2% smaller, suggests the economy has been much stronger than we previously thought. But with the UK still likely to be suffering from a labour supply …
1st September 2023
Gilt yields and sterling have fallen from their cycle highs over the past month or so, and we think the worsening economic growth outlook in the UK and elsewhere mean that this trend will continue over at least the next couple of quarters. Although …
24th August 2023
In an environment in which firms feel able to pass on higher energy costs in their selling prices, the latest leap in wholesale gas prices poses an upside risk to our forecast for core CPI inflation to fall to 2.0% by the start of 2025 and to our forecast …
23rd August 2023
Surveys show that most people in the UK want action to tackle climate change but many do not have the appetite to pay for it. And given that the fiscal firepower and political will to grease the wheels of the green transition are both in short supply, …
14th August 2023
With CPI inflation soon to fall below average earnings growth, the cost of living crisis appears to be coming to an end. But households won’t suddenly stop feeling the pinch. We suspect the level of real household disposable income will remain below where …
7th August 2023
Note: We’ll be discussing the implications of the Bank’s decision for the economy, the housing market and financial markets in a 20-minute online Drop-In at 3pm BST today. (Register here .) Today’s 25 basis point (bps) rise in interest rates from 5.00% …
3rd August 2023
Despite today’s big reaction in markets in the UK to better-than-expected inflation news , we still think investors are overestimating the peak in interest rates there and underestimating how much monetary policy will be eased in 2024 and beyond. Indeed, …
19th July 2023
Despite the softer tone of the CPI inflation data for June released earlier today, we have raised our forecast for the peak in Bank Rate. Rather than rise from 5.00% currently to a peak of 5.25%, we now think Bank Rate will peak at 5.50%. That’s a bit …
Note: We’ll be discussing the UK inflation, growth and policy outlooks after the June CPI release on Wednesday 19 th July. Register here to join that 20-minute online briefing. Splitting real GDP growth into the sectors most and least sensitive to …
18th July 2023
