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The Chancellor’s new fiscal rules could help to convince voters and investors of the Conservative Party’s fiscal discipline. But with eleven rules having come and gone in the past seven years and with no less than nine new fiscal indicators unveiled in …
3rd November 2021
Two key points from the Budget Budget day produces a flurry of analysis but the most interesting reflections tend to come once the dust has settled and everyone has had time to digest the documents. Two points stand out to us. The first relates to the …
29th October 2021
Further signs of stagnating spending growth The tepid rise in consumer credit lends support to our view that economic growth slowed to little more than a crawl in September. Against the backdrop of rising COVID-19 cases and higher inflation, we expect …
Investors may be right that the MPC will hike rates in November or December But we think they are wrong to price in rates rising as far as 1.25% by end-2022 Our new forecast is for rates to rise to 0.50% by February, but no higher next year We now think …
28th October 2021
This Budget was perhaps more notable for what the Chancellor didn’t do rather than what he did. The OBR handed Rishi Sunak a significant upgrade to its forecasts for the public finances but, while the Chancellor spent some of the windfall a substantial …
27th October 2021
This checklist helps clients keep track of the key economic and public finances forecasts announced during the Chancellor’s Budget speech at 12.30pm on Wednesday 27 th October and to provide some instant context. We will send a Rapid Response and a Focus …
25th October 2021
Markets and monetary policy The markets easily shook off this week’s news that CPI inflation fell back in September, from 3.2% to 3.1%, and continued to price in some rapid rises interest rates. That makes sense when everyone knows that CPI inflation is …
22nd October 2021
Building price pressures raises chances of near-term interest rate hike The fifth consecutive fall in retail sales in September, together with signs that non-retail spending was also weak, supports our view that the economic recovery slowed to a crawl …
Despite the improving outlook for the public finances, the rumours that the Chancellor will set himself some fairly stringent fiscal rules suggest that there’s not going to be a net giveaway in the Budget and Spending Review on Wednesday 27 th October. …
21st October 2021
Good news for the Chancellor ahead of the Budget September’s public finances figures mean that the Chancellor will be able to boast in next Wednesday’s Budget that he has reduced government borrowing much quicker than expected. But we suspect he’ll set …
The lull before the storm The dip in CPI inflation in September feels a bit like the lull before the storm as we expect inflation to jump to close to 4.0% in October and to between 4.5% and 5.0% by April next year. As such, the fall in September probably …
20th October 2021
Overview – The UK economy is experiencing a taste of stagflation. This won’t be anywhere near as severe or as persistent as in the 1970s. But for the next six months, the worsening product and labour shortages will put the brakes on the economic recovery …
19th October 2021
There is an outside risk that the UK could face some limited short-term rationing of electricity this winter if weather conditions were to be unfavourable. This risk isn’t yet significant enough to factor into our forecasts. But if the supply of …
18th October 2021
Perhaps the most significant event of the past week came as markets opened on Monday morning. In response to two hawkish interviews by members of the Monetary Policy Committee (MPC) in the weekend papers – one by Governor Bailey and another by Michael …
15th October 2021
Shortages may now be biting harder The 0.4% m/m rise in GDP in August confirms that the rapid gains in output, which in just 16 months lifted GDP from being 25.1% below its February 2020 pre-pandemic peak to 0.8% below, are now behind us. And shortages, …
13th October 2021
Labour shortages seem to be worse and more widespread than we had expected. Although the end of the furlough scheme in late September may ease some of the shortages, we doubt it will plug all the holes. As such, we now think labour shortages are unlikely …
12th October 2021
Tight market may tip MPC towards earlier rate hike The further strengthening of the labour market in August may prompt some members of the Monetary Policy Committee (MPC) to put more weight on the upside risks to inflation rather than the downside risks …
Truth be told, neither Boris Johnson’s nor Rishi Sunak’s speeches to the Conservative Party Conference this week contained anything new on the economic front. Instead, the most notable development came in an interview to the BBC in which PM Johnson …
8th October 2021
The recent sharp rise in public and market-based measures of inflation expectations has worried the Bank of England. Inflation expectations will probably rise further as actual inflation continues to climb. And if they rise by more than the increase in …
5th October 2021
Clouds are darkening over the outlook for the UK economy. A combination of broadening shortages, the fuel crisis, less fiscal support and the risk of higher interest rates will make it difficult for the UK economy to perform as well as its European peers. …
1st October 2021
The impact on the labour market of the end of the furlough scheme could ultimately determine whether an interest rate hike comes in the next few months, or not until mid-2022. Our view remains that its expiry will help to ease the existing shortages and …
30th September 2021
Less spare capacity raises risk of rate hike in the coming months Today’s release suggests the economy is closer to its pre-pandemic level than we had previously thought and raises the risk that the Bank of England hikes interest rates sooner than our …
Risk that the economy will take a small step back The tepid increase in consumer credit in August provides more evidence that the economy didn’t regain much momentum after stagnating in July. And with the current fuel crisis restraining activity (outside …
29th September 2021
The double whammy of higher utility prices and the government’s new “health and social care levy” will reduce real household disposable incomes over the next year or so by £16.5bn, or 0.6% of GDP, compared to otherwise. By slowing real consumption growth, …
28th September 2021
There are two reasons why we now think the Bank of England’s Monetary Policy Committee (MPC) will hike interest rates in 2022 rather than in 2023. First, underlying wage growth and inflation expectations have risen by more than we expected. These are …
24th September 2021
While rates were left at +0.10% in an 9-0 vote and the Bank of England’s target stock of purchased assets at £895bn, today’s Monetary Policy Committee (MPC) policy statement suggests that the Bank is moving closer to raising interest rates. As such, we …
23rd September 2021
Weaker activity and rising inflation may make life tricky for the MPC The small fall in the composite activity PMI in September indicates that the economy lost a little more momentum. But at the same time, there were clear signs that price pressures have …
Borrowing undershoot won’t stop the Chancellor unwinding the fiscal boost August’s public finances figures provided further evidence that the government’s financial position isn’t as bad as the Office for Budget Responsibility (OBR) predicted back in …
21st September 2021
On the back of the surge in inflation from 2.0% in July to 3.2% in August and the blistering increases in wholesale gas and electricity prices, investors are now pencilling in a rise in Bank Rate from 0.10% to 0.25% in Q1 2022 and to 0.50% at the start of …
17th September 2021
Given the recent surge in wholesale gas and electricity prices to record highs, it looks likely that Ofgem will opt for another chunky hike to the price cap on households’ utility bills next April. While this will hit household real incomes, it doesn’t …
Retailers struggle as households spend elsewhere The fourth consecutive fall in retail sales in August isn’t as bad as it looks as some of it reflects households spending more on non-retail items as life returns closer to normal. But as non-retail …
MPC’s position that interest rate hikes are on the horizon won’t have changed But the weak near-term growth outlook means that a rate rise is unlikely soon We think that Bank Rate will remain unchanged at 0.10% until 2023 The Monetary Policy Committee …
16th September 2021
A deeper dive into the CPI figures supports our initial analysis that the bulk of the jump in inflation from 2.0% in July to 3.2% in August is due to base effects linked to falling consumer prices in August last year rather than a widespread and …
15th September 2021
Climb in inflation towards 4.5% to be an uncomfortable ride for the MPC The leap in CPI inflation from 2.0% in July to a nine-year high of 3.2% in August (consensus 2.9%, CE 3.1%) is the first step in a rise that may take inflation to 4.5% or above by …
Labour market still tightening despite unwinding of the furlough scheme The latest data brought more signs that labour market slack is declining fast and that labour shortages are contributing to faster underlying pay growth. We suspect that beyond the …
14th September 2021
The stalling in the economic recovery in July doesn’t mean the recovery is over. But the 0.1% m/m rise in GDP in July revealed on Friday (see here ) does illustrate that the recovery has entered a slower and more challenging phase. To some extent this was …
10th September 2021
Virus cases and shortages stall the recovery The rise in COVID-19 cases and the product/labour shortages are probably behind the stalling in the UK’s economic recovery in July. With next week’s CPI release set to reveal a jump in inflation from 2.0% to …
The broadening of the recent product and labour shortages appears to be holding back activity and adding to the upward pressure on inflation. The risk is twofold. First, these shortages may prevent GDP from returning to its pre-pandemic peak until next …
9th September 2021
The interactions between Brexit, the deterioration in Scotland’s fiscal situation and the continued lack of an easy option for the currency have made the economics of Scottish independence even more challenging than at the time of the first referendum in …
7th September 2021
The net effect of today’s announcements on social care reform may provide a very small boost to GDP. But perhaps more important is that by funding more spending on social care by raising taxes, the government has some room to increase spending further, …
For most of the pandemic period, policymakers have been worrying that there will be too much unemployment. But now the fear is that there aren’t enough workers to fill all the jobs! Admittedly, there are still some lingering concerns that when the …
3rd September 2021
Reports that shortages of heavy good vehicles (HGV) drivers have become more acute and have raised drivers’ pay will do little to ease fears that higher wage growth could persistently lift CPI inflation next year. But unless labour shortages spread to …
Households’ appetite for credit subdued The latest money and credit figures do little to ease mounting concerns that the resurgence in virus cases in July and so-called “pingdemic” brought the consumer recovery to a halt. Consumers did not borrow …
31st August 2021
The list of anecdotal reports of labour and product shortages has grown ever longer in the past week and now includes McDonald’s milkshakes and various items at Greggs. These add to the broadening range of sectors, such as hospitality, wholesale and …
27th August 2021
The inflation expectations of households, businesses and the financial markets will probably rise in the coming months as actual CPI inflation jumps to over 4.0% later this year. But as the rises are most likely to be confined to measures that capture …
25th August 2021
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
