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Activity still well below normal The nature of the PMIs makes them tricky to interpret, but the rise in the composite PMI from 13.8 in April to 28.9 in May probably shows that April was the low point for activity, and that the slight easing in the …
21st May 2020
Easing price pressures suggest the Bank has more work to do The energy-driven slump in inflation in April is unlikely to concern the Bank of England much, but it might find the easing in underlying price pressures a little harder to ignore. And with the …
20th May 2020
The recent weakness in the pound has been driven by renewed concerns about Brexit and the prospect that the Bank of England will have to cut interest rates below zero to support the economy. As a result, there could be some upside for the pound if the UK …
19th May 2020
Sanguine headline figures belie hundreds of thousands of layoffs The headline labour market figures have not yet caught up with the fall in employment of between 500,000 and 1 million revealed in the timelier data for April. And we suspect that …
As the UK imports lessons from Asian countries about controlling pandemics, it may also be useful to take note of the fiscal situation in Japan. The UK Treasury is reportedly already thinking up ways to reduce public debt in the aftermath of the …
15th May 2020
With the Office for Budget Responsibility’s (OBR) government borrowing forecasts only including the cost of just one of the extra four months of the Job Retention Scheme and no medium-term scarring effects of the crisis, borrowing is likely to end up …
14th May 2020
We think it is far more likely that the Bank of England will use further rounds of Quantitative Easing (QE) to boost demand rather than cut interest rates into negative territory as the market is suggesting. Over the past few days money markets in the UK …
Record collapse in economic activity and worse to come March’s GDP figures showed that the UK economy was in freefall as soon as the coronavirus lockdown began. And with all the restrictions in place until mid-May, and then only lifted very slightly, …
13th May 2020
BoE scenario too optimistic There can be little doubt about how bad the recession will be now that the Bank of England has joined us and the Office for Budget Responsibility in forecasting that GDP will fall by 25-35%. Indeed, we will get the first glance …
7th May 2020
While the Monetary Policy Committee (MPC) left its interest rate and quantitative easing (QE) policies unchanged this morning, it implied that an expansion of QE is imminent. This leaves our existing call that the MPC would expand QE by around £100bn at …
The Bank of England has been expanding its balance sheet during the coronavirus crisis mainly to fulfil its role of lender of last resort in a liquidity crisis. That will probably remain the focus for a while yet. But at some point, the Bank may change …
6th May 2020
Survey at a record low, but still not capturing collapse in GDP The collapse in the construction PMI in April confirms that no sector of the economy has been spared from the slump in activity. We already knew that the composite activity PMI, which covers …
While the latest data suggest that our estimate that GDP has fallen by an eyewatering 25% from peak to trough is in the right ballpark, it looks as though the most restrictive parts of the coronavirus lockdown will be eased in May rather than in June as …
5th May 2020
Easing envy It’s possible that on the day before next Friday’s bank holiday to commemorate the 75 th anniversary of the end of the Second War World (VE Day), Boris Johnson will declare that the UK is winning the war against the coronavirus. But while the …
1st May 2020
MPC to signal it continues to stand behind gilt market There’s a chance it could extend QE But that’s probably more likely to happen in the coming months The Monetary Policy Committee (MPC) will probably use its policy announcement on Thursday 7 th May to …
30th April 2020
The calm before the storm The drop in both the number of corporate and individual insolvencies in Q1 is unlikely to be maintained over the next few months as the collapse in revenues and employment caused by the coronavirus pushes many more firms and …
We estimate that banks will have to absorb about £50bn of loan losses from corporate and household defaults as a result of the coronavirus crisis. If anything, the risks are for even bigger losses approaching the £80bn written off during the Global …
29th April 2020
With the reopening of the economy to be governed by the extent to which the coronavirus is brought under control and the burden being placed upon the NHS, there is still a lot of uncertainty about how long the current restrictions will remain in place and …
The shape of the economic recovery from the coronavirus crisis mainly depends on the spread of the virus, the effectiveness of the policy response and the extent to which consumers and businesses change their behaviour. This Update sets out how and why …
27th April 2020
This week’s economic news has been in line with our expectations that economic output will fall by around 25% in the first half of this year. The 5.1% m/m fall in retail sales volumes in March suggests that household consumption declined by at least 4% …
24th April 2020
Sharp drop in sales in March to be followed by a plunge in April The 5.1% m/m fall (consensus forecast -4.0%) in retail sales volumes in March was the largest on record and suggests that household consumption declined by at least 4% q/q in Q1. However, as …
Survey points to unprecedented monthly contraction in GDP in April The eye-watering declines in April’s flash PMIs confirm the coronavirus lockdown has pushed the economy into a recession of unprecedented speed and depth. Particularly worrying was the …
23rd April 2020
First signs of higher borrowing emerge, but much worse to come Despite the slight deterioration in March, the budget deficit was still only £48.7bn (2.1% of GDP) in 2019/20, but it will soon surge next year. The government measures to combat the economic …
CPI inflation starts to slide In March CPI inflation took the first leg of what we suspect will be a sustained journey down to around 0.5% by the summer, easing from 1.7% in February to 1.5% (consensus forecast 1.5%). The fall in CPI inflation in March …
22nd April 2020
Small crack may soon turn into chasm The small crack that appeared to be opening up in the labour market in March may soon turn into a chasm with the unemployment rate rising from 4% to almost 9%. February’s Labour Force Survey (LFS) data weren’t very …
21st April 2020
We fear that the forecasts for the economy published this week by the Office for Budget Responsibility (OBR) will prove to be far too optimistic. We’re not talking about its warning that the coronavirus lockdown will trigger a 35% drop in GDP. There’s no …
17th April 2020
Overview – We think it will take the economy a few years to recover from an unprecedented hit to GDP of around 25% triggered by the lockdown implemented to contain the coronavirus. That’s because despite the unparalleled speed and size of the monetary and …
16th April 2020
It has become clearer to us that the economic legacy of the coronavirus crisis will last a number of years. Our new forecast is that the economy will be about 5% smaller (£100bn) at the end of 2022 than would have been the case if coronavirus didn’t …
14th April 2020
With the number of people fighting COVID-19 in hospital rising day by day, the recent talk of an “exit strategy” from the lockdown appears premature. Even when the restrictions are lifted, consumer and business caution, high unemployment and many …
9th April 2020
We won’t know until the future whether or not the Bank of England has launched helicopter money as it depends if the rise in the money supply is temporary or permanent. But more important is whether it leads to much higher inflation. The markets don’t …
The 0.1% m/m fall in GDP in February will be the last figure that looks anything like “normal” for a while as the coronavirus lockdown will mean that in March and April GDP will fall at a speed and magnitude that the UK economy has never endured before. …
The number of business insolvencies could reach the same level as in the Global Financial Crisis over the next few years, keeping the unemployment rate high and holding back the economic recovery. The number of business insolvencies will be a key …
8th April 2020
Brexit is clearly not a priority right now. But with negotiations shelved due to the coronavirus, it is becoming increasingly likely that the government agrees to extend the transition period beyond 31 st December 2020. This is now our baseline …
7th April 2020
More confirmation that social distancing is obliterating economic activity The incoming data continue to confirm that the UK is destined for the sharpest fall in economic output for over a century in Q2. And the collapse in consumer confidence to its …
6th April 2020
Despite policymakers’ best efforts, it is looking more likely that the unemployment rate and businesses insolvencies could rise as high as in the Global Financial Crisis. Policymakers aim high, but measures fall short The Treasury and the Bank of England …
3rd April 2020
Downward revisions confirm lockdown has led to a huge loss of activity The downward revisions to March’s PMIs confirm that the measures taken to slow the spread of the coronavirus have pushed the economy into a recession of unprecedented scale and depth. …
It’s become clearer that the economic costs of the lockdown to contain the coronavirus will be huge. The plunge in the activity PMIs in March provide some tentative support to our view that GDP could fall by something like 15% q/q in Q2. The 1,500,000 new …
2nd April 2020
Reports of a further leap in new claims for Universal Credit suggest that the government support designed to keep people employed isn’t working and that the unemployment rate could jump from 3.9% in January to about 5.5% in April. Our forecast that the …
1st April 2020
We doubt that the coming explosion in government borrowing or the accompanying rise in government debt will push up gilt yields. Low growth, low inflation, and low interest rates mean that they gilt yields will remain close to their all-time lows …
31st March 2020
Most of the high frequency indicators we track show how the coronavirus lockdown is significantly reducing activity. The exception is the activity of watching TV, which is surging. This too, of course, is a symptom of the plunge in normal economic …
Economy stagnating even before the coronavirus The confirmation that the economy stagnated in Q4 shows that it was very weak even before the spread of the coronavirus in the UK. We expect a 15% q/q fall in GDP in Q2 and things could easily be worse. Q4’s …
The collapse in economic activity, spike in unemployment and slump in oil prices look set to push inflation down from 1.7% now to around 0.5%, with the risk that inflation falls to, or below zero. Either way, if activity and oil prices recover in …
30th March 2020
Worst yet to come for confidence The relatively small fall in the European Commission’s Economic Sentiment Indicator (ESI) for the UK is mainly because the survey was done prior to the UK going into a full lockdown. A much sharper drop in confidence is …
While we still expect the economy to rebound strongly after the virus has been contained, the surge in Universal Credit benefit claims this week raises the risk that it won’t get back to “normal” as quickly as we had previously thought. Policymakers throw …
27th March 2020
This coronavirus recession isn’t anything like a “normal” one. The fall in output will be sudden and vast. The huge policy response means the recovery should be much quicker than normal too. But the scale of the economic dislocation and the risk that the …
This Update was originally sent to clients as a Rapid Response immediately after Rishi Sunak’s press conference on 26 th March. The government’s measures to support the self-employed during the coronavirus crisis will help prop up incomes and employment. …
26th March 2020
If the Bank of England is going to build on the unprecedented policy support it has unleashed in recent weeks to counteract the economic effects of the coronavirus, it won’t be because of concerns over how far inflation or GDP will fall. Instead, it would …
No signs of a stockpiling boost or a big plunge…yet The 0.3% m/m fall in retail sales volumes in February (consensus +0.2%) suggests that even prior to the disruption from the coronavirus, consumers were already starting to rein in spending. Admittedly, …
The coronavirus crisis means that the government’s budget deficit will soon explode to above the 10% of GDP peak seen in the financial crisis and debt could spiral from about 80% of GDP now to over 100%. However, if we are right in thinking that the …
25th March 2020
The UK’s current account deficit is the main reason why the pound has fallen by more than other currencies against the US dollar over the past fortnight. The same was true in the Global Financial Crisis, and the pound never really recovered. But the pound …
