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We estimate that the leap in utility prices and hike in taxes on 1 st April will reduce real household disposable incomes over the next two years by a cumulative £80bn. The resulting 2.0% decline in real incomes in 2022 will be the largest on record. (See …
10th February 2022
We now think that Bank Rate will rise from 0.50% currently to 1.25% sooner than we previously thought. What’s more, we now expect three more 25 basis point (bps) rate rises in 2023, resulting in rates ending next year at 2.00%. That compares to the …
9th 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
While the decisions by the Bank of England to hike interest rates from 0.25% to 0.50% and to start reversing quantitative easing (QE) were both as expected, with four MPC members wanting to raise rates to 0.75% and all members deciding to sell the …
3rd February 2022
Omicron didn’t put a big dent in household borrowing The decent rise in consumer credit in December suggests that, although consumers exercised a touch more caution as Omicron COVID-19 cases surged at the end of last year, the economy didn’t collapse. …
1st 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
The unfavourable growth/inflation trade-off has worsened We think investors are right to price in an interest rate hike in February to 0.50% And we expect rates to rise to 1.25% by end-2022, further than most anticipate The further surge in inflation …
27th January 2022
Inflation a headache, but Chancellor still has wiggle room Stronger tax revenues were just enough to offset big rises in debt interest costs in December. But we don’t expect this to last: further rises in inflation will mean borrowing soon overshoots the …
25th January 2022
Omicron hangover to be short-lived, signs of shortages easing The third consecutive decline in the composite PMI indicates that the Omicron variant weighed further on activity in January. But the recent fall in COVID-19 cases, relaxation of restrictions …
24th 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
Huge fall points to bigger Omicron hit The fall in retail sales volumes in December was bigger than expected and supports our view that the Omicron outbreak in the run-up to Christmas may have dragged down GDP by 0.5% m/m, if not more. The 3.7% m/m fall …
The looming squeeze on real wages means that the near-term outlook for consumption and GDP has weakened. That said, we don’t expect anything as bad as the squeeze in 2008-14. In fact, real household disposable income may well recover by early 2023. Real …
20th January 2022
Target-busting inflation heading to 7% After rising from 5.1% in November to 5.4% in December, CPI inflation is now further above the Bank of England’s target than at any point since the UK first adopted an inflation target in October 1992. (See Chart 1.) …
19th January 2022
Coping with furlough and Omicron, but real wages will fall further The labour market appears to have tightened after the end of the furlough scheme and at the start of the Omicron wave. So even though real wages are now falling and will decline further, …
18th January 2022
Overview – Although the hit to households’ real incomes from a bigger surge in CPI inflation than most expect (to a peak of almost 7% in April) explains why we think GDP growth will be slower this year than the consensus forecast, we still think that the …
17th 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
Omicron may drag GDP back below its pre-pandemic level Although the effects of the Omicron COVID-19 wave will probably mean that the economy falls back below its pre-pandemic peak by January after having surpassed it for the first time in November, that …
While the general perception is that higher inflation is unambiguously good for the public finances, the reality is a bit more nuanced. The Chancellor will almost certainly be gifted with a lower public debt ratio. However, inflation will probably mean …
12th 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
Our new forecasts for 2022 envisage CPI inflation rising further than most expect to a peak of 7% and the Bank of England raising interest rates quicker, from 0.25% now to 1.25% by the end of the year. COVID-19 has the capacity to spring more surprises. …
6th January 2022
Given the huge surge in cases throughout December, the COVID-19 situation is once again set to be the biggest determinant of the performance of the economy over the first few months of 2022. We aren’t factoring in any additional UK-wide restrictions, but …
5th January 2022
November’s strength unlikely to have lasted The healthy rise in consumer credit in November adds to evidence that economic activity strengthened in the middle of Q4. But that feels like a distant memory now. Against a backdrop of surging COVID-19 cases, …
4th January 2022
Less momentum going into Q4 Today’s release indicates the economy had a bit less momentum in Q3 than we had previously thought. And, with early signs the Omicron variant has hit activity, growth is sure to have slowed further in Q4. Upward revisions to …
22nd December 2021
Borrowing overshoot could continue in the coming months The rise in government borrowing in November suggests the public finances could be already starting to feel the strain from higher spending on NHS Test & Trace and booster vaccines. Now that tighter …
21st December 2021
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
Black Friday boost, but Omicron threatens Christmas for retailers The strong growth in retail sales in November feels like a bit of a consolation prize for retailers who are now once again facing a difficult Christmas in light of the rapidly worsening …
The surprise hike in interest rates by the Bank of England today, from 0.10% to 0.25%, could just be a case of the Bank moving a bit quicker than expected, but the hawkish tone of the commentary suggests to us that it is now also willing to move a bit …
16th December 2021
Omicron already hitting services hard The fall in the composite PMI in December doesn’t come as much of a surprise given the surge in cases of the Omicron variant of COVID-19. But it was much bigger than expected, and shows that caution among businesses …
Inflation close to being further above the target than ever before Inflation is close to being further above the target than at any point since the UK started targeting inflation in October 1992. This makes tomorrow’s interest rate decision look closer, …
15th December 2021
Reports that the surge in Omicron COVID-19 cases is causing some people to stay away from work, schools, pubs and restaurants increases the downside risks to our December and January GDP forecasts. But the big step down would happen if there were another …
14th December 2021
Furlough fears fading, COVID-19 concerns climbing Even though the fallout after the furlough scheme was smaller and shorter than the Bank of England had feared, concerns over the deteriorating COVID-19 situation will probably prevent it from raising …
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
Touch-and-go whether economy grows or contracts in December The news that the economy was hardly growing at all before Omicron means it is touch-and-go whether it will grow a bit in December or shrink a bit. Against that background, we doubt the Bank of …
A hike this month does not look likely, but is possible Omicron is unlikely to prompt more QE or negative interest rates Lift off to occur early next year, but rates probably won’t rise as far as investors expect We wouldn’t completely rule it out, but we …
9th December 2021
While the emergence of the Omicron COVID-19 variant has increased the downside risks to our GDP forecasts, it has arguably increased the upside risks to our CPI inflation forecasts. The transmissibility, severity and capacity for Omicron to escape …
7th 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
The latest data suggest that the upward pressure on wage growth from labour shortages has a bit further to run. Admittedly, the discovery of the Omicron variant has clouded the near-term outlook for wages and the labour market, with higher virus …
30th November 2021
The restrictions announced by the government on Saturday in response to the new Omicron COVID-19 variant increase the downside risks to our GDP forecasts and the chances that the Bank of England delays increasing interest rates until next year. And …
29th November 2021
Omicron darkens the outlook for spending The rise in consumer credit in October adds to evidence that economic activity fared well at the start of Q4. But that no longer offers much comfort in light of the discovery of the new Omicron variant. While much …
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
Brexit is undoubtedly a factor behind the slower post-pandemic recovery in UK exports relative to elsewhere. But it doesn’t appear to be the sole reason. Instead, pandemic effects may explain at least some of the shortfall. That suggests some of the …
24th November 2021
Signs of higher cost inflation add to Bank’s inflation concerns The composite activity PMIs hardly changed in November as the economy held up fairly well despite continued supply disruptions and shortages. Meanwhile, signs that price pressures continued …
23rd 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
Rebound in retail sales will give Bank of England confidence The rebound in retail sales in October adds to the evidence that activity held up well in October and will raise expectations that the Bank of England will hike interest rates from 0.10% to …
Chancellor unlikely to get much more help from the economy, for now The winding down of the furlough scheme helped to bring down public sector net borrowing in October. But we doubt that the public finances will get much help from faster GDP growth in the …
Bank unlikely to ignore this leap in inflation When coupled with yesterday’s decent labour market release, the bigger-than-expected leap in CPI inflation in October makes an interest rate hike in December even more likely. That said, we still think the …
17th November 2021
Market remains tight after the end of furlough This labour market release is the first of two before the Bank of England’s December policy meeting and it suggests that the labour market remained tight after the furlough scheme ended. If the story is …
16th 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
With speculation rising that the UK will trigger Article 16 of the Northern Ireland Protocol, the big risk is that relations between the UK and the EU sour to such an extent that parts of the whole UK/EU Brexit deal unravel. Even if things do not …
11th November 2021
New-found momentum will soon fade The economy regained some momentum in September, but continued shortages and the drag on real incomes from higher utility prices probably mean it will soon fizzle out. That’s one reason why we doubt that the Bank of …
