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Recovery slowing more quickly than we had thought The chunky fall in the composite activity PMI suggests that the economy struggled to gain fresh momentum in August despite the apparent easing of the “pingdemic” and the final relaxation of all domestic …
23rd August 2021
July’s fall in CPI inflation from 2.5% in June to 2.0% was the first time since March that inflation has surprised the consensus on the downside. But it probably won’t have provided the Monetary Policy Committee (MPC) with much relief, for two reasons. …
20th August 2021
Retail sales slump, but better news on the public finances While there was good news on public borrowing, the slump in retail sales added to other evidence indicating that in July the economic recovery slowed to a crawl. Although public sector net debt …
Still on course to reach 4.5%, despite July’s fall July’s drop in CPI inflation is likely to be followed by sharp rises in the next few months, taking inflation to a peak of about 4.5% by the end of the year. But provided the spike in inflation does not …
18th August 2021
Surge in earnings growth, but underlying pay pressures contained The latest batch of data brought signs that labour shortages are feeding through into higher pay growth in certain sectors. But underlying pay pressures were reasonably contained overall, …
17th August 2021
The GDP figures for June, which showed that the economy grew by 1.0% m/m after the 0.6% m/m rise in May, was an impressive result given the surge in COVID-19 cases in that month. (See here .) But we warned a couple of weeks ago that the “pingdemic”, which …
13th August 2021
Recovery regains some momentum The media headlines have focused on the big 4.8% q/q gain in GDP in Q2, following Q1’s 1.6% q/q fall. But the real news was the unexpectedly strong growth in June which suggested that the recovery maintained a bit more …
12th August 2021
With a whopping 1.0 million people on average having been asked by the NHS App or Test & Trace system to self-isolate in July, the “pingdemic” is likely to have stifled the economic recovery in recent months. (See here .) In July, our Capital Economics …
11th August 2021
We learnt three things from this Thursday’s Bank of England policy decision and were left in the dark on two key issues. As a result, some of our forecasts for money market rates and gilt yields have changed. What we learnt First, the Bank of England …
6th August 2021
The Monetary Policy Committee’s (MPC) policy statement sent a clear signal that higher interest rates are on the horizon. But there were few signs that it is preparing to hike rates soon. What’s more, we continue to envisage inflation dropping back more …
5th August 2021
A bumper rise in utilities prices in October could contribute to CPI inflation climbing to a 10-year high of 4.4% in November. But as we don’t expect higher CPI inflation to feed through into higher inflation expectations or faster underlying pay growth, …
3rd August 2021
This week brought further signs that the “pingdemic” weighed on economic activity in July. (See here .) The number of people having been asked by the NHS App or Test & Trace system to self-isolate has almost doubled in the past three weeks, reaching 1.3 …
30th July 2021
The MPC will probably revise up its near-term inflation forecasts. Only Saunders to break ranks to vote in favour of an early end to the Bank’s net asset purchases. The MPC is unlikely to signal interest rate hikes are getting closer. While the Bank of …
29th July 2021
Resurgence of virus triggers some rise in consumer caution The money and credit data showed that consumers were willing to take on more debt in June. However, with consumers accumulating excess savings at a faster pace, there were signs that the …
With a whopping 1.1 million people having been asked by the NHS App or Test & Trace system to self-isolate in the week ending 14 th July, the “pingdemic” has weakened the near-term outlook for activity. (See Chart 1.) After all, the result of some workers …
23rd July 2021
Recovery becoming more tepid The second consecutive decline in the flash composite PMI in July came as no surprise to us as we expected the pace of the economic recovery to naturally slow after the big gains following the reopening of retail and …
Some signs of softening The underlying trend in retail sales volumes is a bit weaker than the 0.5% m/m rise in June suggests. And other evidence indicates that the resurgence in the virus and the “pingdemic” may have taken some oomph out of the overall …
Higher interest costs won’t stop deficit from falling quicker than OBR expects June’s public finances figures provided further evidence that the strong economic recovery is feeding through into lower government borrowing. So despite rising debt service …
21st July 2021
Overview – Our forecast that COVID-19 won’t significantly reduce potential supply means that the economy can run a bit hotter for longer without generating the persistent rise in inflation that would require monetary policy to be tightened. Admittedly, …
20th July 2021
In response to the jump in CPI inflation from 2.1% in May to 2.5% in June (see here ) and yet more signs that the labour market is bouncing back (see here ), two members of the Monetary Policy Committee (MPC) this week indicated that policy will need to …
16th July 2021
Job market slack will keep underlying pay pressures contained May’s figures paint a picture of a labour market well on its way to recovery and will further fuel concerns about labour shortages and the possible boost to inflation from higher wage growth. …
15th July 2021
Higher commodity prices and shortages starting to boost inflation The rise in CPI inflation from 2.1% in May to 2.5% in June was smaller than the leap in US inflation to 5.4% released yesterday, but we think the gap between the two will shrink as …
14th July 2021
Supply shortages were once again evident in the final PMIs released this week. June’s manufacturing PMI showed supplier delivery times lengthened still further and the measures of prices paid by firms rose to their highest levels since the surveys began …
9th July 2021
Losing a bit of verve The easing in the pace of the economic recovery in May suggests that GDP is now more likely to return to the February 2020 pre-pandemic peak in October rather than in August. The bigger point, though, is that the recovery so far has …
The widely reported labour shortages should mostly prove temporary. While it may take 6-12 months before some of the underlying causes unwind, recruitment difficulties probably won’t have a long-lasting upward impact on wage growth. As such, they …
8th July 2021
Bigger rises in commodity and component costs than we had expected mean that we now think CPI inflation will rise from 2.1% in May to a peak of about 4.0% around the turn of the year. But we still think this will be a short, sharp spike in inflation that …
6th July 2021
It’s understandable that the start of the winding up of the furlough scheme on 1 st July (when firms had to start paying 10% of the wages of their furloughed workers) has caused some concern. After all, even after taking into account the cumulative cost …
2nd July 2021
Larger stock of savings an upside to economic recovery The small downward revision to Q1 GDP growth probably won’t stop the economy from rising back to its pre-pandemic peak in the coming months. And the larger-than-expected rebound in the household …
30th June 2021
The recent softening in some indicators of activity is probably mostly a result of shifts in spending patterns within the economy rather than a sign that the recovery has already stalled. As such, we still expect monthly GDP to rise back to its …
29th June 2021
Households resume pre-virus borrowing habits The signs that households have started to borrow again provide us with confidence that May’s surprise fall in retail sales was a result of a shift in spending from retailers to other areas as the economy …
The evolving outlook for monetary policy on the other side of the Atlantic has once again been partly to blame for recent movements in UK markets. Like in the US, the yield curve flattened after the Fed became more hawkish at its May meeting, although …
25th June 2021
Other than the Monetary Policy Committee (MPC) noting the growing upside risks to inflation alongside today’s policy decision, there were no real signs that it is thinking about tightening policy sooner, à la the Fed. We think policy will be tightened …
24th June 2021
Pace of economic recovery may be peaking The fall in the flash composite PMI from a record high of 62.9 in May to 61.7 in June indicates that the pace of the recovery may have peaked. That suggests the monthly rises in GDP will ease back from the 2.3% m/m …
23rd June 2021
We think there’s a good chance that when the Bank of England’s Monetary Policy Committee (MPC) starts to tighten monetary policy it will do it by unwinding some quantitative easing (QE) before it raises interest rates. That would be consistent with the …
22nd June 2021
Stronger economy feeding through to lower borrowing May’s public finances figures suggest the strong economic recovery is starting to feed through into lower government borrowing. This reinforces our view that the tax hikes and spending cuts that most …
We covered the growing upside risks to our inflation forecast in last week’s UK Economics Weekly . (See here .) But after the jump in CPI inflation from 1.5% in April to 2.1% in May, we now think CPI inflation will rise to a peak of 2.9% later this year …
18th June 2021
Less time shopping, more time socialising Rather than suggest the economic recovery is already spluttering, the decline in retail sales in May is probably just a result of the reopening of indoor hospitality in mid-May prompting households to spend less …
MPC to acknowledge stronger activity and inflation But it will probably continue to hint policy won’t need to be tightened until late in 2022 We think 2024 is more realistic, and that some QE will be unwound before interest rates rise Even though the …
17th June 2021
Reopening of the economy may push inflation up to 3% With businesses having raised their prices by more than we expected once they reopened after COVID-19 lockdowns ended, we now think CPI inflation will rise to a peak of 2.9% later this year compared to …
16th June 2021
Strong recovery underway but still plenty of slack Another strong set of labour market figures released this morning will feed concerns about labour shortages and the possible impact on inflation of higher wage growth. But the level of employment is still …
15th June 2021
A four-week delay to the easing of the final domestic COVID-19 restrictions beyond 21 st June is unlikely to prevent the economy from climbing back to its pre-pandemic size by the autumn. And although there is a clear risk that “Freedom Day” will be …
14th June 2021
Our big non-consensus call that the Bank of England won’t tighten policy until 2024 rather than in 2022 as the markets have assumed is based on our forecast that CPI inflation won’t stick above the 2% target until late in 2023. That view is being …
11th June 2021
Recovery stepped up a gear as economy reopened The jump in GDP in April was another sign that consumers are raring to spend as the economy reopens. And all the early indicators suggest that GDP growth was strong in May as well. As such, our forecast of …
The risks to our forecast that CPI inflation will rise from 1.5% in April to a peak of 2.6% in November before dropping back in 2022 are increasingly on the upside. Rises in shipping costs and global agricultural commodity prices as well as shortages of …
10th June 2021
It is not just the weather that has hotted up in recent days, so too have the signs of a rapid economic rebound in Q2. The rise in May’s composite PMI to a record high was the latest bit of good news. And while the PMI might overstate the rebound, it is …
4th June 2021
Consumers funding spending by saving less, not borrowing more April’s money and credit data suggests that consumers were still wary about taking on any additional debt. But even if consumers’ willingness to borrow remains limited, they have enough …
2nd June 2021
As anyone who has tried to find a builder recently or even do a DIY project will know, the construction industry is booming. In March output in the sector as a whole was 2.3% above its pre-crisis level. But this masks some large divergences within the …
28th May 2021
Borrowing undershoot likely to continue April’s public finances figures showed that the government’s financial position isn’t as bad as the Office for Budget Responsibility (OBR) predicted only two months ago, reinforcing our view that the tax hikes and …
25th May 2021
In a week when we found out that employment rose in the three months to March (see here ), CPI inflation doubled to 1.5% in April (see here ), retail sales surged in the same month (see here ) and the flash composite PMI jumped to a record high in May …
21st May 2021
Economic recovery shifting through the gears Another rise in the flash composite PMI from 60.7 in April to a record high of 62.0 in May points to the economic recovery shifting through the gears and picking up speed. That suggests the pace of the rises in …
