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Overview – The combination of a large share of the UK’s GDP being generated by the sectors that are hampered the most by social distancing and the drag from the uncertainty caused by Brexit means the UK economy will probably continue to lag behind its …
20th July 2020
Not so “V” After the temporary respite brought by May’s strong retail sales figures, this week marked a return to the generally gloomy news on the pace of the recovery. Activity struggled to recover meaningfully in most sectors of the economy in May, with …
17th July 2020
Reassuring despite largest fall in employment since 2011 The smaller-than-expected fall in employment in May and evidence that the first wave of joblessness in the coronavirus crisis ended in June shows that the furlough scheme has been effective in …
16th July 2020
A dip into deflation lies ahead The small rise in CPI inflation from +0.5% in May to +0.6% in June probably won’t be sustained for long as the effects of the Chancellor’s VAT cut for the hospitality/tourism sectors and the “Eat Out to Help Out” restaurant …
15th July 2020
The Office for Budget Responsibility (OBR) today sent a clear message to the government that regardless of the speed of the recovery, the government debt to GDP ratio is on an unsustainable path. Even so, we suspect that soaring debt levels will be …
14th July 2020
Not so “V” after all The 1.8% m/m rise in GDP in May is a disappointing first step on the road to recovery and suggests that hopes of a rapid rebound from the lockdown are wide of the mark. Indeed, the path to full economic recovery will probably be much …
One consequence of the new policies announced by the Chancellor last week is that the UK will soon enter a period of deflation. But this will be the good form of deflation, which is temporary, boosts real incomes and incentivises people to spend, rather …
13th July 2020
Spend, spend, spend…and spend Not that long ago a £30bn (1.4% of 2019 GDP) package of tax cuts and extra government spending would have been lauded as fiscal largesse. But coming on top of the £160bn (7.2% of GDP) already spent since the start of the …
10th July 2020
A surge in the money supply has piqued fears of a leap in inflation. But in our view, there is little chance that this expansion of the money supply, driven almost entirely by quantitative easing, will lead to inflation because demand is very weak. There …
9th July 2020
The £30bn (1.4% of GDP) of extra measures announced today by the Chancellor may go some way to speeding up the economic recovery from the coronavirus crisis and limiting the long-term hit to unemployment. But we still doubt that GDP will return to its …
8th July 2020
Some indicators suggest the UK is lagging behind other countries in the race to recover from the coronavirus, and it faces some additional hurdles which could slow it down even more. That’s why we expect UK authorities to keep fiscal and monetary policy …
7th July 2020
Economy rebounding but worse to come for the labour market While the PMIs are tricky to interpret at the moment, the recovery in the all-sector PMI from a trough of 13.4 in April to just shy of 50 in June is another sign that there has been a strong …
6th July 2020
Divisions on the MPC The evidence continued to pile up this week that the economy is rebounding more quickly than we had previously expected. Footfall on UK high streets has risen sharply. On 1st June it was 75% below pre-crisis, but by the end of the …
3rd July 2020
Given the success of the government’s job furlough scheme and the signs of a strong initial rebound in economic activity we now think that the unemployment rate will peak later, in June 2021 rather than in July 2020, and at a lower rate of 7%, …
2nd July 2020
Drop in Q1 GDP a taste of things to come The 2.2% q/q drop in GDP in Q1 2020 was the joint largest fall since 1979 and sets the stage for an unprecedented 15-20% fall in Q2, despite evidence that the economy rebounded in May and June. The National …
30th June 2020
With further fiscal support likely to be unveiled at some point in the next few weeks, the government appears willing to sustain the fiscal stimulus into the years ahead rather than lurch towards austerity as it did after the Global Financial Crisis. This …
29th June 2020
SMEs don’t hesitate to take advantage of bounce back loans The Bounce Back Loan Scheme (BBLS) restored access to credit for small and medium-sized enterprises (SMEs) in May. That increases the chances of a swift recovery but will also raise the fiscal …
Output recovering but employment intentions wavering The rise in the UK Economic Sentiment Indicator (ESI) in June suggests that the economy is continuing to recover after its nadir in April. But firms and households are becoming more downbeat on the …
It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to …
While we were correct in forecasting a peak-to-trough fall in GDP of 25% (see here ) , recent data suggest that the rebound in economic activity began sooner and has been a bit stronger than we had previously anticipated. By May, the retail sector had …
26th June 2020
As long as social distancing isn’t practised for many years, then those behavioural changes triggered specifically by the coronavirus crisis will probably prove temporary. But those changes that were already underway and which have been supercharged by …
23rd June 2020
Activity on the climb but still well below normal The nature of the PMIs makes them tricky to interpret at the moment, but the rise in the composite PMI from 30.0 in May to 47.6 in June (consensus 41.0) suggests that the additional easing in the lockdown …
If the behaviour of Samuel Pepys after the Great Plague of 1665/66 is anything to go by, then people will be willing to return to offices, shops, pubs and theatres surprisingly quickly once the coronavirus crisis subsides. So as long as the virus is …
22nd June 2020
On the road to recovery The sharper-than-expected rebound in retail sales in May shows that the economy has turned the corner and embarked on the recovery leg at pace. (See here .) The quicker reopening of the economy suggests that GDP might contract by …
19th June 2020
Online sales and DIY stores drive the recovery The bigger-than-expected rebound in retail sales in May, was driven by another big step up in online sales and the reopening of DIY stores, and is a sign that the economy started to get back to its feet. But …
Borrowing peaked but will remain high for years The double whammy of the precipitous fall in economic activity and the government’s measures to combat the crisis has already pushed the debt to GDP ratio above 100% for the first time in over 50 years. …
We think today’s Monetary Policy Committee (MPC) decision to keep rates on hold at +0.10% and increase Quantitative Easing (QE) by £100bn is unlikely to be the last act of policy loosening. And while we wouldn’t rule out the Bank of England cutting …
18th June 2020
Other forecasters were slow to appreciate the depth of the recession. Since then, the consensus GDP forecast has been revised down close to our own. But we think other forecasters are still underestimating how weak inflation will be, and how much further …
The latest data highlighted a diverging trend between the two main measures of unemployment. Neither measure is perfect, but at least the claimant count is timelier than the ILO measure. Until the ILO measure catches up, we are putting more weight on the …
17th June 2020
Persistently weak inflation to prompt regular QE expansions May’s further fall in inflation is probably only the beginnings of a prolonged period of very soft price pressure that we think will prompt the Bank of England to announce a total of £350bn more …
A continued return of risk appetite as the economy slowly recovers from the coronavirus crisis will boost equities and the pound so long as there is a compromise on Brexit. But with the Bank of England likely to keep interest rates close to zero and do …
16th June 2020
Headline ILO unemployment figures not capturing full force of downturn The labour market figures for April suggest that the unemployment rate may not increase quite as far as we had anticipated. Even so, bigger rises are almost certainly on the way as the …
We assume that a slim trade deal will be agreed by the end of this year and that a big step change in the UK-EU relationship will be avoided. But with the chances of a “no extension, no Brexit deal” rising, the risks to the UK’s economic recovery are on …
15th June 2020
Nailed it! At the risk of tooting our own horn too much (and tempting fate), the 25.0% drop in GDP since February means that our forecasts for the impact of the coronavirus lockdown on the UK economy have been spot on recently. (See here .) Indeed, back …
12th June 2020
Lockdown reduced economic output by 25% At its peak in April the lockdown reduced economic output by 25%, making the coronavirus crisis by far the deepest recession on record. The peak-to-trough fall in GDP was 7% in both the Global Financial Crisis and …
The huge amount of borrowing undertaken by firms in the last three months is reassuring in the sense that businesses are getting the cash they need to make ends meet. But some firms won’t be able to cope with the higher debt burden. And those that can …
11th June 2020
MPC likely to announce another £100bn of QE in June… …and that won’t be the last expansion Negative interest rates possible, but far from guaranteed The Bank of England has much more work to do. It will probably start by announcing £100bn more …
Unlike the period after the Global Financial Crisis (GFC), we doubt that the government will immediately turn to a prolonged period of austerity after the surge in the debt to GDP ratio during the coronavirus crisis. This suggests the economy won’t have …
10th June 2020
The bulk of the leap in the saving rate will be reversed as the economy opens and people start spending again but the desire to hold more savings post-lockdown combined with lower incomes will weigh on consumption over the next few years, prolonging the …
Business debt up, household savings up We got another look into how household and business finances are doing this week. Non-financial businesses took on another £8.4bn of bank debt in April, on top of the record £30.2bn they borrowed in March. This takes …
5th June 2020
While the most restrictive period of the lockdown is behind us, the measures enforcing business closures and social distancing are only being eased very gradually. According to the ONS “Business Impact of Coronavirus Survey”, the number of businesses …
4th June 2020
PMIs confirm activity is returning only gradually The rebound in May’s all-sector PMI suggests the economy is now on the long road to normality. But the PMI echoes the message from the high frequency data that the recovery will be protracted. At 40.7 and …
The swift and significant response of the Bank of England to the coronavirus crisis has prevented a financial crisis, but we think the Bank will need to do much more than the markets currently expect to get the economy back on track. By this time next …
Households deleveraging but businesses continue to load up on debt The record fall in net loans to households and another surge in borrowing by businesses in April is an indication of how the lockdown has affected consumer spending and business revenues. …
2nd June 2020
While this week’s high frequency data have confirmed that the low point for the economy is behind us, the figures have done little to alleviate our concerns that the recovery will be protracted. The good news is that after giving the green light to some …
29th May 2020
Weak animal spirits may hold back the recovery While the slight easing in social distancing rules in May helped industrial confidence to recover a little, the headline UK Economic Sentiment Indicator (ESI) fell further in May as services and retail firms …
28th May 2020
The goings on in the gilt market neatly summarise how it is been a negative week for the economy and financial markets. On Wednesday, the government sold 3-year gilts at a negative yield (of 0.003%) for the first time, meaning that if investors hold the …
22nd May 2020
April marks the low point for sales The 18.1% m/m fall (consensus forecast -16.0%) in retail sales volumes in April was easily the largest on record. The good news is that April should be the low point. But the bad news is that May is unlikely to be a …
Government borrowing skyrockets The double whammy of the precipitous fall in economic activity and the government’s measures to combat the crisis has already pushed borrowing to alarmingly high levels. While the small easing of the lockdown on 13 th May …
The government’s furlough scheme has prevented the UK economy from being engulfed by a tsunami-like first wave of unemployment. But a second wave will probably come once the reduction in the generosity of the scheme in August forces businesses to decide …
21st May 2020
