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Recession begins and not because of the extra bank holiday About half of the 0.6% m/m fall in real GDP in September and half of the 0.2% q/q decline in Q3 as a whole was caused by the one-off reduction in the number of working days due to the extra bank …
11th November 2022
Recession begins and not just because of the extra bank holiday Although at least half of the 0.6% m/m decline in GDP in September (consensus -0.4% m/m, CE -0.5% m/m) and the 0.2% q/q decline in Q3 as a whole (consensus and BoE forecasts -0.5% q/q) was …
While the risk premium that pushed gilt yields up and the pound down after the mini-budget has mostly been reversed under the stewardship of Sunak and Hunt, the fear that the markets will baulk at any fiscal indiscipline means that the Chancellor will …
10th November 2022
Chief UK Economist Paul Dales and Jonas Goltermann, a senior economist from our Global Markets team, held a client briefing shortly after the Chancellor’s 17th November statement, to discuss his final policy choices and their implications for the UK …
We’ll be discussing the implications for the economy and the financial markets of the Autumn Statement in a 20-minute online briefing at 4pm GMT on 17 th November. (Register here .) In his Autumn Statement on 17 th November the Chancellor, Jeremy Hunt, …
This week the Bank of England displayed the most extreme example of a “dovish hike” that we can recall. The hike bit; the 75 basis point rise in interest rates was the largest rise since 1992; it meant that rates have risen in each of the past eight …
4th November 2022
Although the Monetary Policy Committee (MPC) raised interest rates today by 75 basis points (bps), from 2.25% to a 14-year high of 3.00%, it sent the strongest signal yet that it thinks rates won’t need to rise much above 4.00%. But with price/wage …
3rd November 2022
Dovish tilt, but rates may still rise to 5.00% Although the Monetary Policy Committee (MPC) raised interest rates today by 75bps, from 2.25% to a 14-year high of 3.00% (consensus 3.00%), it sent a strong signal that it is unlikely to raise rates to the …
Although the resignation of Liz Truss as Prime Minister leaves the UK without a leader when it faces huge economic, fiscal and financial market challenges, the markets appear to be relieved. The pound has climbed from $1.12 to $1.13 and 30-year gilt …
2nd November 2022
Economists from our UK Economics team held a briefing ahead of the MPC’s November meeting to discuss why we think that rates will rise further than most analysts are expecting and the conditions that would be needed for the Bank to shift to a slower pace …
31st October 2022
Households take caution as real spending power falls The increase in precautionary household saving in September and weakening demand for credit poses an extra downside risk to our forecast that the economy will contract by 2% during a recession. These …
Households take caution as real spending power falls September’s money and credit figures point to further signs that consumers have been become more cautious in response to the weakening economic outlook. The £0.7bn rise in consumer credit (consensus …
The reports that the Chancellor, Jeremy Hunt, will unveil in his Autumn Statement on 17 th November a fiscal tightening of up to £50bn by 2026/27 (1.7% of GDP) suggest that after a period in which fiscal policy has provided the economy with support, it is …
28th October 2022
Rising price/wage expectations will prompt the MPC to hike rates aggressively on Thursday It’s almost 50-50 between a 75bps and 100bps hike, but we are going for 100bps Our forecast that rates will peak at 5.00% remains higher than the consensus …
27th October 2022
Fiscal tightening still on its way as next PM has to work hard to restore credibility The fall in gilt yields on the news today that Rishi Sunak will become the UK’s next Prime Minister has reduced the chances of a significant fiscal consolidation. Even …
24th October 2022
Whichever way events unfold over the next few days, it seems clear the next Prime Minister (Rishi Sunak or Penny Mordaunt) will have to work hard to restore credibility in the eyes of the markets by revealing measures to fill the hole in the public …
PMIs point more firmly to recession The decline in the composite flash PMI to 47.2 in October took it further below the boom-bust level of 50.0, placing it deeper into contraction territory. This is consistent with recent data that suggests the economy …
PMIs point more firmly to recession The decline in the composite flash PMI to 47.2 in October took it further below the boom-bust level of 50.0, placing it deeper into contraction territory, and sits with recent data that suggests the economy is heading …
We do not yet know which of the three PM hopefuls (Boris Johnson, Rishi Sunak, Penny Mordaunt who have attracted early backing from Conservative MPs) will replace Liz Truss. The candidates that gain more than 100 nominations from MPs will be whittled …
21st October 2022
Fiscal tightening on its way as next PM has to work hard to restore credibility The weakness in retail sales and overshoot of the Office for Budget Responsibility’s (OBR) March public borrowing forecast won’t make the next Prime Minister’s task any …
Fiscal tightening on its way as next PM has to work hard to restore credibility The weakness in retail sales and further overshoot of the OBR’s March public borrowing forecast won’t make the next Prime Minister’s task any easier in navigating the economy …
While the UK government’s apparent U-turn on fiscal policy offers some hope of relief for sterling, we think the outlook remains precarious. We continue to expect that sterling will lose further ground against the US dollar in the near term. But while …
20th October 2022
Overview – The drag on the economy from CPI inflation being stuck at 10% for a year and interest rates rising to 5.00% will be enough to trigger a recession that involves real GDP declining by around 2.0% from its peak to its trough. What’s more, …
New Prime Minister will have to work hard to restore credibility Although the resignation of Liz Truss as Prime Minister leaves the UK without a leader when it faces huge economic, fiscal and financial market challenges, the markets appear to be relieved. …
As the new Chancellor, Jeremy Hunt, unveils whether, when and how he will put public debt on a sustainable path in his Medium-Term Fiscal Plan on Monday 31 st October, the big question will be whether his actions will be enough to restore credibility …
The UK property market has a long history of either causing or worsening recessions. But that history has taught both banks and regulators a lesson. So while higher debt payments, falling property prices and a slump in construction will play a major …
19th October 2022
Underlying inflation strengthening despite weaker outlook The further strengthening in domestic price pressures despite the clear weakening in the economic outlook supports our view that the Bank of England will raise interest rates by 100 basis points, …
Underlying inflation still strengthening despite weakening economy The rebound in CPI inflation, from 9.9% in August to 10.1% in September (consensus 10.0%, CE 10.2%), lends some support to our view that the Bank of England will raise interest rates by …
Fiscal uncertainty reduced, but inflation may be higher for longer The Chancellor didn’t just do a further U-turn on the Truss/Kwarteng policies in his statement today, he essentially wiped them out in an attempt to reassure the financial markets that the …
17th October 2022
“Dear, oh dear”. King Charles neatly summed up the thoughts of the nation with those three words when he greeted the Prime Minister, Liz Truss, on Wednesday for their weekly meeting. The big question is who will the King be greeting next week? Will it be …
14th October 2022
Government still has a lot more to do to restore credibility Today’s sacking of the Chancellor and reversal of more of the tax cuts included in the mini-budget creates some downside risks to our forecast that interest rates will rise from 2.25% to 5.00% …
UK Drop-In: Does the fall of Kwasi Kwarteng mark an end to the UK’s crisis? …
Economy contracts as markets fret The contraction in real GDP in August won’t ease the jitters in the financial markets at a time when the recent behaviour of politicians and the words of the Governor of the Bank of England are making the markets …
12th October 2022
Economy losing more momentum as the markets fret The 0.3% m/m fall in GDP in August (consensus and CE 0.0%) won’t ease the jitters in the financial markets at a time when the recent behaviour of politicians and the words of the Governor of the Bank of …
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
Note: This report has been updated in the 6th paragraph to reflect 11th Oct. comments from BoE Governor Andrew Bailey. Given that the surge in gilt yields that has forced the Bank of England to intervene in the market was initially driven by the …
Labour market won’t make the Bank of England’s task any easier While there were tentative signs that the labour market is cooling from the red-hot conditions seen in recent months, the shortfall in labour supply is keeping it exceptionally tight. That …
Labour market won't make the Bank of England's task any easier While there were tentative signs that the labour market is cooling from the red-hot conditions seen in recent months, the shortfall in labour supply is keeping it exceptionally tight. That …
The Prime Minister, the Chancellor and investors will probably all be breathing a huge sigh of relief today as there was no guarantee that they would end the week in the same positions as they started it. But the lesson from the past couple of weeks is …
7th October 2022
If interest rates rise from 2.25% to 5.00%, as we now expect, we think the economy will suffer a deeper recession involving a 2% peak-to-trough fall in real GDP. That may result in the unemployment rate rising from 3.6% in July to 5.5% and may …
5th October 2022
The government-induced turmoil in the markets this week has altered our thinking in five key ways. First, we have raised our forecast for the peak in interest rates from 4.00% to 5.00%. At the end of last week, we had thought that the tax cuts announced …
30th September 2022
If the UK government’s “new era of fiscal policy” boosts GDP growth as planned, the UK’s long-term prospects will be much improved. But the action announced so far will not achieve this. It is even possible that, by denting the UK’s fiscal credibility, …
Looser fiscal policy to send cost of borrowing soaring The surge in interest rate expectations since the Chancellor’s “mini-budget” will sharply raise the cost of borrowing in the economy. We now expect Bank rate to reach a peak of 5.00% which will push …
Looser fiscal policy to send cost of borrowing soaring August’s money and credit figures suggest that in August consumers were starting to adjust their borrowing and savings behaviour in response to higher inflation. The £1.1bn rise in consumer credit …
Smaller economy a blow to Chancellor’s fiscal plans The good news is that the economy is not already in recession. The bad news is that contrary to previous thinking, it still hasn’t returned to pre-pandemic levels. It’s the only G7 economy in that …
Smaller economy makes Chancellor’s fiscal plans look even more untenable The good news is that the economy is not already in recession. The bad news is that contrary to previous thinking, it still hasn’t returned to pre-pandemic levels. It’s the only …
Mini-budget forces BoE to step in to prevent financial crisis The continued fallout this morning from the Chancellor’s mini-budget has forced the Bank of England to step in to avoid the early stages of a financial crisis. It has postponed its plan to sell …
28th September 2022
In response to the government’s loose fiscal plans and the resulting weakening in the pound, we now think that interest rates will rise from 2.25% now to a peak of 5.00% (4.00% previously). Rates at those levels make the housing market look very …
27th September 2022
The rise in market interest rates that has already happened will push up mortgage rates to at least 6% and reduce the size of loans that lenders can offer. The resulting drop in buying power makes a significant drop in house prices inevitable. Many …
Long-term fiscal sustainability is governed by what happens to a combination of economic growth, government borrowing costs and the primary budget balance. Since we’re sceptical that the tax cuts announced by Kwasi Kwarteng last week will boost …
