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The UK economy’s underperformance and higher and longer lasting inflation problem has earned it the unenviable title of “stagflation nation”. (See here and our podcast : “What’s wrong with the UK economy and what will it take to fix it”?) And speculation …
19th May 2023
This dashboard presents our latest forecasts for the UK economy out to 2050. If you can't see the full interactive experience, including all of the charts and tables, and would like to enquire about upgrading, contact sales@capitaleconomics.com … UK …
This dashboard tracks the evolution of the UK labour market and our forecasts If you can't see the full interactive experience, including all of the charts and tables, and would like to enquire about upgrading, contact sales@capitaleconomics.com … UK …
This dashboard tracks the latest indicators of UK household activity and our forecasts If you can't see the full interactive experience, including all of the charts and tables, and would like to enquire about upgrading, contact sales@capitaleconomics.com …
Cooling labour market eases some pressure on BoE to raise rates further The labour market loosened by a bit more than the Bank of England expected in March. That may alleviate some pressure on the Bank to raise rates above 4.50% at the next policy meeting …
16th May 2023
Cooling labour market eases some pressure on BoE to raise rates further The labour market loosened by a bit more than the Bank of England expected in March. That may alleviate some pressure on the Bank to raise rates further at the next policy meeting in …
Yesterday’s 25 basis point rise in interest rates from 4.25% to 4.50% was widely expected in the end. But we’ve been forecasting that rates would rise to 4.50% since November last year. (See here .) The most striking thing coming out of yesterday’s …
12th May 2023
We doubt sterling’s strong run will continue; we still think that an economic downturn in the UK and other advanced economies will lead to renewed downward pressure on sterling later this year. Despite falling back a bit, to ~1.25 against the US dollar, …
Still no recession, but economic growth soggy The news that the economy contracted by 0.3% m/m in March and grew by just 0.1% q/q in Q1 as a whole (consensus +0.1% q/q, Bank of England 0.0% q/q, CE +0.1% q/q) suggests that lower real household incomes …
Still no recession, but economic growth soggy The news that the economy contracted by 0.3% m/m in March and grew by just 0.1% q/q in Q1 as a whole (consensus +0.1% q/q, Bank of England 0.0% q/q, CE +0.1% q/q) suggests that low real income and high …
Today’s 25 basis point (bps) rise in interest rates from 4.25% to 4.50% takes rates to our long-held forecast and may be the last hike, although one or two more hikes are possible. We suspect the subsequent holding phase will be fairly long, lasting until …
11th May 2023
Rates may have peaked, but risks of one or two more hikes remain Today’s 25bps rise in interest rates from 4.25% to 4.50% takes rates to our long-held forecast and may be the last hike, although another hike or two is perfectly possible. We suspect the …
Pound standing to attention for King’s Coronation Note: We’ll be discussing the Bank of England’s May decision in an online briefing at 10:00 EDT/15:00 BST on Thursday, 11 th May . Register Now . The Coronation of King Charles III means the UK is on show …
5th May 2023
Will 4.50% be the peak? Markets and economists have come round to our view that rates will rise to 4.50% 4.50% may well be the peak Risk is that resilient economy and sticky inflation prompt rise to 4.75% or 5.00% With the financial markets and other …
4th May 2023
We’ve been surprised that the rise in Bank Rate from 0.10% in November 2021 to 4.25% hasn’t triggered a contraction in GDP at the start of this year. Indeed, while higher interest rates were a further drag on net mortgage lending in March, the …
Decline in bank deposits doesn’t look like a bank run March’s money and credit data showed that the collapse of the US bank SVB and the takeover of Credit Suisse in early March triggered a small withdrawal of funds from the overall UK banking system. …
A combination of the falls in global agricultural commodity prices, energy prices and wage growth will soon drag down food CPI inflation from a 46-year high of 19.6% in March perhaps to around 4.5% by the end of the year. Food inflation will soon become a …
3rd May 2023
The Bank of England’s Chief Economist, Huw Pill, has come under fire this week after saying that everyone in the UK “needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices whether through higher …
28th April 2023
The recent resilience in economic activity and stubbornness of inflation is raising market rate expectations, gilt yields, UK equities and the pound. And there is a growing risk that interest rates rise above 4.50% and/or stay high for longer. But we …
26th April 2023
More wiggle room for the Chancellor The news that total borrowing in 2022/23 was £13.2bn lower than the Office for Budget Responsibility (OBR) predicted only a month ago provides the Chancellor with more wiggle room to cut taxes and/or raise spending …
25th April 2023
More wiggle room for the Chancellor The news that total borrowing in 2022/23 was £13.2bn lower than the Office for Budget Responsibility predicted only a month ago provides the Chancellor with more wiggle room to cut taxes/raise spending ahead of the next …
The stubbornness of CPI inflation in March, which seems more marked than elsewhere (see here ), has left us more comfortable than we were at the start of this week with our view that the Bank of England will raise interest rates by 25 basis points (bps) …
21st April 2023
Resilience in economic activity continues into Q2 April’s flash PMIs suggest the economy is still proving resilient to the dual drags of high inflation and high interest rates going into Q2. That, alongside evidence suggesting that domestic inflationary …
Despite soggy sales, outlook for retailers a bit sunnier than it was Underlying retail sales volumes aren’t as soggy as the 0.9% m/m drop in March suggests as some of that fall was due to the unusually wet weather. The further rebound in consumer …
Resilience in economic activity continues into Q2 April’s flash PMIs suggest the economy is still proving resilient to the dual drags of high inflation and high interest rates going into Q2. That, and the uptick in the services output prices balance, …
Not as bad as it looks, but higher interest rates to restrain spending The 0.9% m/m fall in retail sales volumes in March (consensus -0.5%, CE -1.0%) probably isn’t as bad as it looks as it was partly due to the unusually wet weather. The further rise in …
This Update was originally published on 19 th April. We have updated the data, charts and text to reflect the growing divergence between inflation in the UK and elsewhere evident after today’s release of the UK inflation figures for May. Clients can read …
19th April 2023
Fight against inflation is lasting longer than expected Plunging energy price inflation will soon drag down CPI inflation more significantly, but the stubbornness of core inflation suggests that the fight against inflation is lasting longer than the Bank …
Stubborn core inflation points to one more rate hike…at least The smaller-than-expected fall in CPI inflation in March, from 10.4% in February to 10.1% (consensus/CE 9.8%, BoE Feb MPR 9.2%) and the stubbornness of core inflation, which stayed at 6.2% …
Wage growth eases further, but slowly The labour market became a bit less tight in February and wage growth continued to ease, albeit slowly. That leaves the Bank of England with a tough call on whether to raise interest rates further. Tomorrow’s release …
18th April 2023
Wage growth easing albeit slowly The labour market became a bit less tight in February and wage growth continued to ease, albeit slowly. That leaves the Bank of England with a tough call on whether to raise interest rates further. Tomorrow’s release of …
Surge in household incomes unlikely to be sustained The UK economy has continued to be more resilient to the twin drags of higher inflation and higher interest rates than we thought. Real GDP was flat in February despite an extra drag from the strikes. …
14th April 2023
The fading effects of the mini-budget meant that bank lending conditions to households and businesses didn’t deteriorate any further in Q1. But the latest credit conditions survey doesn’t capture the full extent of the tightening triggered by recent …
13th April 2023
Bank of England may yet need to generate a recession The stagnation in real GDP in February means the economy probably avoided recession in Q1. But it also increases the chances that the Bank of England will need to raise interest rates further to …
Continuing to dodge recession The stagnation in real GDP in February (consensus +0.1%, CE 0.0%) means the economy probably avoided recession in Q1. But it also increases the chances that the Bank of England will need to raise interest rates further to …
Current market pricing suggests that there is around a 60% chance that, at the next policy meeting in May, the Monetary Policy Committee (MPC) raises interest rates by 25bps, from 4.25% now to 4.50%. This isn’t surprising given the decision will probably …
6th April 2023
Recent data suggest the economy’s resilient end to 2022 was sustained at the start of this year. But while the worst of the falls in real household incomes are in the past, we still think around two-thirds of the drag on real activity from the rise in …
5th April 2023
While there are downside risks from hidden exposures or a sudden loss of confidence and deposits, our sense is that the banking issues won’t escalate significantly further, or spread to UK banks. (See here .) The broad message from this week’s …
31st March 2023
The “ Powering up Britain ” plan presented by the UK government this week highlights the benefits and limitations of official involvement in reducing emissions. On the one hand, the plans to reduce the price of electricity relative to gas will help to …
Recession still to come this year as resilience recedes The final Q4 2022 GDP data suggested the economy was even more resilient in 2022 than we previously thought, as the government absorbed some of the hit to households from high inflation. But we …
Households have a slightly larger savings buffer The upward revision to real GDP growth in Q3 and Q4 of last year suggests that high inflation took a slightly smaller toll on the economy than we previously thought. But with around two-thirds of the drag …
Even though equity prices in the UK have fallen further than in the US and the euro-zone since the US bank SVB failed and the European bank Credit Swisse was taken over, the pound has strengthened from $1.20 to $1.23. That is probably partly because of …
30th March 2023
While households and businesses took further advantage of rising interest rates in February by moving money into bank accounts with higher rates, they are not withdrawing money from the overall banking system. We doubt this significantly changed after the …
Higher interest rates continue to hurt housing more than consumer credit February’s money and credit data suggest that higher interest rates were a further drag on lending in February, particularly in the housing market. That’s before the effects of the …
29th March 2023
Higher interest rates continue to hurt housing more than consumer credit February’s money and credit data release suggests that higher interest rates were a further drag on lending in February, particularly in the housing market. That’s before the recent …
As we discussed in our “Drop In” webinar after this week’s Bank of England policy decision (see here ), the 25 basis points (bps) hike in interest rates, from 4.00% to 4.25%, could prove to be the end of the tightening cycle. But it is the data on the …
24th March 2023
Fading domestic price pressures could mean yesterday’s rate hike is the last The flash PMIs suggest the economy’s strong start to the year was sustained in March. But with the full drag from high interest rates yet to be felt, our hunch is still that …
Activity remains resilient, despite global banking issues The flash PMIs suggest the economy’s strong start to the year was sustained in March. But with the full drag from high interest rates yet to be felt, our hunch is still that the economy will enter …
Too soon to conclude February’s rebound will be sustained The further rebound in retail sales volumes in February suggests the recent resilience in activity hasn’t yet faded. But we doubt this will last as the drag on activity from higher interest rates …