Filtered by Subscriptions: UK Economics Use setting UK Economics
The Monetary Policy Committee (MPC) struck a more dovish tone today while raising interest rates from 0.75% to a 13-year high of 1.00% and saying that it won’t make a decision until after August on whether to shrink its balance sheet quicker by selling …
5th May 2022
Consumer spending appears to be holding up well so far The decent increase in unsecured borrowing in March suggests that the plunge in consumer confidence and fall in real incomes have not caused consumer spending to collapse. This lends some support to …
4th 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
Rising price/wage expectations will prompt MPC to raise interest rates by 25bps MPC to announce its decision to sell some of its gilt holdings A tight labour market/more persistent price pressures may mean rates rise to 3.00% in 2023 The weakening …
28th April 2022
Our new forecast that interest rates will be raised from 0.75% now to a peak of 3.00% next year is more hawkish than the peak priced into the financial markets (2.50%) and the peak expected by the consensus of economists (2.00%). That’s because we think …
27th April 2022
Overview – Even though a further surge in CPI inflation to a 40-year high of 10% in October will take the economy to the brink of recession, we think the Bank of England will raise interest rates from 0.75% now to a peak of 3.00% in 2023 to contain …
26th April 2022
Public finances won’t offer much help to the Chancellor in 2022/23 Total borrowing for the 2021/22 fiscal year overshot the Office for Budget Responsibility’s (OBR) March 2022 forecast by some £24bn, rounding out the third-worst year for the public …
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
PMIs point to continued easing in economic growth The fall in the composite PMI in April suggests GDP growth has continued to slow as the cost of living crisis has intensified. But economic activity doesn’t appear to be collapsing. And, beneath the …
Gloomy signs of spending crunch The hefty fall in retail sales in March marks the second consecutive month of decline and adds to signs that the real wage squeeze is hitting consumer spending. With CPI inflation already at a 30-year high and set to keep …
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
High inflation means BoE will have to raise rates further than it expects The rise in CPI inflation in March from 6.2% to a new 30-year high of 7.0% was the sixth upside surprise in as many months and will pile more pressure on the Bank of England to …
13th April 2022
Some signs of a softening in labour demand The latest batch of data brought some signs of a softening in labour demand, but with the unemployment rate having fallen to pre-COVID levels, job vacancies at a record high and wage growth rising, the labour …
12th April 2022
Recovery slowing and at risk of stalling The news that the economy was hardly growing at all in February suggests the economy had a little less momentum in Q1 than we had previously thought, and increases the risk of a contraction in GDP in the coming …
11th 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
Households using savings to offset the fall in real incomes The leap in inflation was behind the fall in real household disposable incomes in Q4 of last year. But it is encouraging that households appear willing to reduce their saving rate in order to …
31st March 2022
Households still happy to spend The leap in credit card borrowing in February and smaller increase in household savings could suggest that the cost of living crisis is already starting to bite. But we think it is more likely that households had the …
29th March 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
Small fall a sign of things to come The small fall in retail sales in February probably had more to do with the shift back towards non-retail spending and the impact of Storm Eunice than it did the cost of living crisis. But, with further rises in …
War impact on activity small so far, but inflation risks intensify The surprisingly small fall in the composite activity PMI in March suggests that the war in Ukraine didn’t take that much steam out of the economy at the end of the first quarter. That …
24th March 2022
The Chancellor, Rishi Sunak, provided more support to the economy than we had expected over the next few years in today’s Spring Fiscal Statement, but he could have gone further in 2022/23. Instead, he chose to bank some extra cash so there’s scope for …
23rd March 2022
This checklist helps clients keep track of the key economic and public finances forecasts announced during the Chancellor’s Spring Statement speech at 12.30pm on Wednesday 23 rd March and to provide some instant context. We will send clients a Rapid …
High inflation means both the Chancellor and BoE have more work to do The further rise in CPI inflation from 5.5% in January to a new 30-year high of 6.2% in February adds to the pressure on the Chancellor to offset more of the cost of living crisis in …
Mixed bag for the Chancellor ahead of the Spring Statement Notwithstanding the deterioration in the public finances in February, large revisions to the back data mean that borrowing in 2021/22 is on track to undershoot the OBR’s October 2021 forecast by a …
22nd 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
Today’s 25bps hike takes interest rates up to the pre-pandemic and post-Global Financial Crisis high of 0.75% and, although the Monetary Policy Committee (MPC) sounded a bit less hawkish than it did at its past meeting in February, it still signalled that …
17th March 2022
The Chancellor, Rishi Sunak, will use his Spring Statement on 23 rd March to soften the blow for households facing rising energy and food costs. However, any hopes that he will announce a big handout may be disappointed as he tries to strike a balance …
16th March 2022
Fears high inflation is fuelling wage growth The further fall in the unemployment rate to within a whisker of the pre-pandemic rate will only encourage the Bank of England to raise interest rates on Thursday, probably from 0.50% to 0.75%, despite the …
15th March 2022
We think that most of the fall in the size of the UK’s labour force since the onset of the COVID-19 pandemic should eventually be reversed. Even so, we wouldn’t be surprised if this took another two years or so. That suggests to us that the labour market …
14th 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 good as it gets for this year The cost of living crisis and the influence of the war in Ukraine probably means that the 0.8% m/m leap in GDP in January is as good as it gets for this year. Meanwhile, two-thirds of the huge 20% m/m fall in UK exports to …
War in Ukraine worsening the tricky mix between rising inflation and slowing GDP growth Rising price expectations to force MPC to raise interest rates by 25bps A tight labour market may mean that rates rise to 2.00% next year The economic consequences of …
10th March 2022
The UK is not as exposed to the economic consequences of the war in Ukraine as the rest of Europe. Even so, in response to the surge in global commodity prices caused by the war we have dramatically revised up our inflation forecasts and modestly revised …
9th March 2022
In response to the news that the US is considering banning imports of Russian oil, which means that commodity prices will probably be higher for longer, we have raised our CPI inflation forecast and will soon cut our UK GDP growth forecast. To reflect the …
7th March 2022
The 10-year/2-year gilt yield curve is closer to inverting than at any point since March 2020, supporting our view that GDP growth will slow this year. And while a yield curve inversion isn’t a good leading indicator of a recession in the UK, it’s clear …
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
While gilt yields could drop further if the war in Ukraine escalates much further and/or it becomes clear that it is significantly reducing economic activity in the UK, at the moment we think gilt yields are more likely to rise over the next two years. …
2nd March 2022
Weaker borrowing likely to persist The muted rise in consumer credit in January suggests that the Omicron wave was still prompting households to exercise caution at the start of this year. With interest rates rising and the cost of living crisis only set …
1st March 2022
As it stands at the moment, we still think that the Russian/Ukraine conflict is more likely to boost inflation in the UK by more than it reduces GDP growth and that the Bank of England will continue to raise interest rates at the next few policy meetings. …
28th February 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
Today’s grave escalation of the Russia/Ukraine conflict threatens to keep CPI inflation in the UK even further above the 2% target this year and reduce households’ real incomes by even more. The conflict probably won’t prevent the Bank of England raising …
24th February 2022
Borrowing in the black, but inflation still a burden Public sector net borrowing was in surplus in January as the figures were flattered by the usual bump from higher income tax receipts. Nonetheless, it was a smaller surplus than the Office for Budget …
22nd February 2022
Omicron just a blip, more signs of supply shortages easing February’s punchy flash PMIs provide even more evidence that the economy has rebounded swiftly after the hit from Omicron. And beneath the headline numbers, there are tentative but encouraging …
21st 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
Omicron recovery underway, but cost of living crisis beginning to bite A solid rebound in retail sales in January suggests the hit to activity from Omicron was smaller and shorter than previously thought. Even so, the cost of living crisis will restrain …
CPI inflation may rise to a peak of nearly 8.0% in April The rise in CPI inflation in January from 5.4% to a new 30-year high of 5.5%, the latest rise in oil prices and the new item weights mean that we now think CPI inflation will rise to a peak of 7.9% …
16th February 2022
A recipe for further interest rate hikes Employment has recouped the falls after the furlough scheme, the unemployment rate has fallen to pre-COVID levels, job vacancies are at a record high and wage growth is rising. That’s a recipe for more interest …
15th 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
Shrugging off Omicron, but big squeeze in real incomes lies ahead When combined with the CPI inflation rate of 5.4%, the 0.2% m/m fall in GDP in December meant that the economy experienced a taste of stagflation at the end of last year. As it was driven …
