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Retail spending rises further above pre-pandemic levels The further rise in retail sales in August was particularly encouraging as we know non-retail spending picked up at the same time, suggesting that consumer spending has rebounded strongly. The 0.8% …
18th September 2020
As the Bank of England already has a QE programme in place and financial markets have remained calm, it was no surprise that the MPC voted unanimously to keep policy unchanged in September. But we think that it will loosen policy further, most likely in …
17th September 2020
Inflation bottoms out The sharp drop in CPI inflation in August probably represents the low point for inflation. But a sustained rise to 2.0% seems unlikely within the next few years. The plunge in inflation from +1.0% in July to +0.2% in August …
16th September 2020
No fallout from unwinding of the furlough scheme…yet It’s encouraging that the start of the unwinding of the furlough scheme in August has not led to a surge in job losses. But we think it is only a matter of time before that happens and the unemployment …
15th September 2020
We don’t think that the recent underperformance of UK equities will continue. But we no longer expect them to make up the ground that they have lost to their peers since the virus hit. Since the plunge in equity prices in March, UK equities have …
14th September 2020
The recent rebound in housing transactions and jump in house prices will boost consumption over the coming months, but the boost will only be temporary. Once the stamp duty holiday expires at the end of March and the unemployment rate starts to rise, the …
A 6% fall in the pound from $1.35 to $1.28, questions over the legality of the government’s actions and condemnation from the EU are all sure signs that the summer is over, a Brexit deadline is looming and the possibility of the transition period ending …
11th September 2020
The last of the big rises The strong 6.6% m/m rise in GDP in July suggests that the record-breaking negative growth rate of GDP in Q2 will be followed by a record-breaking positive growth rate in Q3. However, July was probably the last of the big step ups …
The financial markets have woken up with a bang to the possibility that the Brexit transition period ends on 31 st December without a deal. That could set back the UK’s economic recovery from the coronavirus recession and prompt the pound to weaken from …
10th September 2020
Downside risks to the Bank of England’s forecasts are crystallising MPC will wait until the current QE program is ending before adding more stimulus QE still the tool of choice, negative rates possible further ahead The initial recovery has been …
Our Capital Economics BICS Indicator suggests that the rapid economic recovery has continued with some chunky gains in GDP in both July and August. (See Chart 1.) If so, then the economy may now be “only” 8% below its pre-crisis level and around 70% of …
8th September 2020
The economy’s impressive initial recovery from the coronavirus recession will soon fade. That was always going to happen naturally once most sectors had reopened. But the prospect of some tax rises in the Autumn Budget, the resurgence in Brexit …
7th September 2020
Indigestion from the success of the government’s “Eat Out to Help Out” scheme seems to have struck in Westminster. The scheme boosted the number of diners in restaurants by over 200% y/y on the last day of August and by more than 20% y/y over the month as …
4th September 2020
While the Bank of England might not follow the Fed and change its inflation remit, we doubt this will stop it from significantly loosening policy and from keeping it loose for a very long time. The Fed announced last week that it will now seek “to achieve …
3rd September 2020
The reopening of schools this week could give a boost to GDP of around 5% as output in the education sector returns to normal and parents who have had to provide childcare get back to work. The impact that school closures had on the economy was determined …
Households resume pre-virus borrowing habits July’s money and credit data confirm the resurgence in the housing market while recovering consumer credit suggests that households’ appetite for big ticket purchases is returning. The rise in mortgage …
1st September 2020
After the 8.7% m/m gain in GDP in June, another surge as the economy re-opened in July is already baked in the cake, perhaps of 7.5% m/m according to our CE BICS Indicator. (See here .) But while this rise sounds impressive, GDP would still be 11% below …
28th August 2020
Economic recovery already starting to fizzle out The small fall in the UK Economic Sentiment Indicator (ESI) in August suggests that the economic recovery might already be starting to fizzle out. What’s more, rising unemployment is likely to further …
The recovery in total consumer spending is almost certainly lagging well behind the surge in retail sales. And although the early signs of a recovery have been positive, a coming wave of unemployment will put a dampener on consumers’ willingness and …
27th August 2020
Despite the news that the latest round of UK-EU Brexit negotiations ended in deadlock last Friday, sterling has remained remarkably stable. This suggests that while there may be some small upside for sterling if a slim trade deal is agreed by 31 st …
With the so-called “easy” part of the economic recovery probably coming to an end, the next leg is likely to be slower, particularly if like overseas, the UK suffers a renewed surge in virus cases and more localised lockdowns. While the high frequency …
26th August 2020
The recent lull in business insolvencies will almost certainly be followed by a wave of businesses going bust as government support is withdrawn. This will contribute to a surge in unemployment over the next year and is one reason why we expect the strong …
25th August 2020
The surprise rise in CPI inflation, from +0.6% in June to +1.0% in July, highlights that the effects of the pandemic will not only be deflationary. While some of the increase was due to recovering oil and fuel prices, core inflation also rose. That was …
21st August 2020
Further signs recovery continued at a strong pace in August The sharp rise in the composite IHS Markit/CIPS Flash PMI in August provided further evidence that the recovery continued at a strong pace in Q3. Even so, we expect rising unemployment to put a …
Rise in debt ratio beyond 100% unlikely to panic the Chancellor July saw the fourth biggest monthly deficit in history behind only the first three months of this fiscal year. A massive increase in debt to over £2 trillion for the first time ever and above …
Retail spending rises above pre-pandemic levels Retail sales rose above their pre-pandemic levels in July as non-essential shops were allowed to open for the whole month. But the sector has benefited disproportionately from online spending and a switch …
While the success of the UK’s job furlough scheme has prevented the unemployment rate from rising as far as it has in the US, an increase in UK unemployment has been delayed rather than avoided altogether. This is a key reason why we expect an impressive …
20th August 2020
The sudden imposition of quarantine on people arriving from France highlights the risks involved in foreign travel while the virus is still circulating. This uncertainty is likely to mean it takes a very long time for international travel to recover from …
19th August 2020
Inflation still set to fall close to zero, despite July jump The sharp rise in CPI inflation from +0.6% to +1.0% came as a bit of a surprise, but it is unlikely to mark the start of an upward trend. CPI inflation still looks on track to fall to within a …
The overwhelming bulk of the pain from the huge 20.4% q/q fall in real GDP in Q2 (which hides the bigger peak to trough fall of 25.6% between February and April) has so far been borne by the government and businesses rather than by households. But that is …
14th August 2020
GDP recovering, but it will feel like a recession for a long time The rises in GDP in May and June mean that in some ways the largest recession on record is already over. But as the full scale of the fallout in unemployment has yet to be felt and as GDP …
12th August 2020
The success of the Eat Out to Help Out (EOHO) scheme suggests that fears about the virus are not preventing activity. But as meals out only seem to be popular due to a heavy discount, consumers are still behaving cautiously. This restraint is part of the …
11th August 2020
The lull before the storm The cracks evident in the latest batch of labour market data are likely to soon turn into a chasm with the unemployment rate rising from 3.9% to around 7.0% by mid-2021. The 220,000 q/q (0.7%) fall in employment in Q2 (consensus …
By July, we think that around 4 million people had already left the government’s job furlough scheme and 5 million remained on the scheme. That fall is faster than we had expected but does not change our forecast that the ILO unemployment rate will reach …
10th August 2020
We don’t think that the recent resurgence in the coronavirus in certain parts of the UK makes the economic outlook any weaker than we already thought. But more widespread outbreaks would either slow the pace of the economic recovery, stall it, or send it …
7th August 2020
Interest rates lower for longer The Monetary Policy Committee (MPC) could have saved itself some time and just read our UK Economics Focus , published on 4 th June, or our UK Economics Update , published 14 th May, both of which came to much the same …
The Monetary Policy Committee (MPC) left its interest rate and quantitative easing (QE) policies unchanged today and its new projections appear to suggest that no further loosening is required. But its dovish language is more important for the future path …
6th August 2020
The large share of consumer-facing services in the UK economy, combined with a deeper and longer lockdown than most other developed economies meant that the UK was always going to be hit harder than some other countries. But the larger fall in GDP in the …
5th August 2020
Easing the economy off life support As we enter August, we come to the first of many crunch points in the economy’s recovery from the coronavirus. (See here .) The labour market has been in suspended animation with the government’s furlough scheme …
31st July 2020
Further signs the recovery continued in July The jump in the UK Economic Sentiment Indicator (ESI) in July is an encouraging sign that the recovery continued at a decent pace at the start of Q3. Even so, rising unemployment is likely to put a brake on the …
30th July 2020
The MPC is unlikely to expand QE before November But it may signal that further stimulus will be needed at some point It could revise down the effective lower bound, leaving the door open to negative rates We expect the Monetary Policy Committee (MPC) to …
Easing in the rush for cash The signs that firms did not rush quite as fast to take on more debt in June and that households started to borrow again rather than pay down debt suggest that the economy is moving back towards normal. But as the road to …
29th July 2020
A surge in new domestic coronavirus cases is the biggest downside risk to our forecast that it will take two years for the economy to return to its pre-crisis peak. It could mean that the recovery takes even longer. And if it coincided with the winter flu …
28th July 2020
A new type of recession requires new tools to measure it. It has become clear that the activity PMIs will be of little use in gauging the extent and pace of the recovery from the coronavirus crisis. Our new “Capital Economics BICS Indicator”, which is …
27th July 2020
An anniversary present for the PM? This morning’s retail sales and PMI releases, which appeared to suggest that the economy is quickly recouping the output lost during the coronavirus lockdown and is getting back to normal quicker than the euro-zone, were …
24th July 2020
The economy is on life support, but this can’t last forever. This Update highlights the key dates to watch as the policy support is phased out, in particular the end of the furlough scheme on 31 st October and the winding up of a cluster of other measures …
Encouraging, but economy still well below pre-crisis levels The surge in the composite PMI to 57.1 in July is an encouraging sign of further recovery, but it is not an indication that GDP has recovered to its pre-virus level. We don’t expect that to …
Retail spending back to pre-pandemic levels Retail sales rose back to pre-pandemic levels in June. But since the sector has benefitted disproportionately from online spending and a switch away from other types of spending, this overstates the extent of …
The coronavirus crisis is a new type of recession, but all the normal reasons why business investment recovers slowly from downturns still apply and the uncertainty about Brexit is an additional drag. The upshot is that business investment will lag behind …
23rd July 2020
Cash outflow starts to ease The smaller rise in public sector borrowing in June compared to May suggests that government support is starting to wind down as the economy reopens. However, government borrowing is still exceptionally high and we suspect that …
21st July 2020
