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Inflation to drop to 1% in the third quarter The drop in CPI inflation from 1.8% in January to 1.7% in February is a small sign of things to come – we expect the effects of the coronavirus crisis to drag inflation below 1.0% in the months ahead. The …
25th March 2020
The enormous fall in GDP that we have pencilled in for Q2 as a result of the economic effects of the coronavirus implies that the unemployment rate will spike over the next few months and that incomes will be hit hard. However, the short duration of the …
24th March 2020
PMI already at record low before government restrictions bite The first conventional data for March confirmed that the coronavirus was having a massive negative impact on activity even before the Government stepped up the severity of its measures to slow …
This Update was originally sent to clients as a Rapid Response immediately after Rishi Sunak’s press conference on 20 th March. The Chancellor’s announcement this afternoon means that the government’s coronavirus-fighting economic package is now worth …
20th March 2020
There is no doubt that the coronavirus health crisis has already led to an economic crisis and this week we saw the first real signs of severe disruption in the financial markets. Health crisis The spread of the coronavirus is at an earlier stage in the …
Big stimulus package from BoE has succeeded so far in easing some financial market stresses But with financial conditions still unusually tight, the Bank may need to do more The Bank may need to test out some new, extreme, tools The decisive action taken …
Deficit will soon explode After coming in at about 2% of GDP in 2019/20, the budget deficit will soon explode to close to the size seen in the great financial crisis. The government’s measures to combat the economic fallout of the coronavirus at the same …
The high frequency indicators we track show that the spread of the coronavirus is already having an impact on the economy. There is no doubt these activity indicators will deteriorate further as the government’s measures to contain the virus become …
The big package of measures announced by the Bank of England today in its second emergency meeting in just over a week is designed to ease the stress in the financial markets and to support the recovery once the full economic hit from the coronavirus has …
19th March 2020
This Update was originally sent to clients as a Rapid Response immediately after Rishi Sunak’s speech on 17th March. While the large package of measures aimed to counter the economic effects of the coronavirus unveiled by the government today probably …
17th March 2020
The Bank of England can’t prevent the economy from falling into recession. But like the Fed, we think it will soon throw everything in its policy arsenal at the coronavirus crisis to try to prevent the markets from seizing up and to reduce the risk of a …
We now think that the economic effects of the coronavirus will result in GDP falling by around 15% q/q in Q2, that the Bank of England will soon launch £150bn of quantitative easing, and that the government will need to act as a backstop for banks and …
The last hurrah for the labour market The strong rate of employment growth at the start of the year is a rare bit of good news for the economy at the minute. But this growth will give way to a plunge in employment in the coming months. Employment rose by …
This week’s shift in the UK government’s coronavirus strategy from the “contain” stage to the “delay” stage has not yet led to the stringent measures deployed in Europe, such as school closures and bans on mass gatherings, which would put a large dent in …
13th March 2020
While it is a given that GDP growth will slow sharply over the next few months as the economic consequences of the coronavirus are felt, some sectors will weather the storm better than others. We expect the recreation, transport and motor vehicles sectors …
12th March 2020
The coordinated fiscal and monetary stimulus announced by the Chancellor and the Bank of England today shows that policymakers are pulling out all the stops to ensure that the coronavirus results in the economy following a path over the coming quarters …
11th March 2020
Economy struggling even before the coronavirus The stagnation in GDP in January shows that the economy was weak even before people started worrying about the coronavirus. And our more timely measures of activity, such as weekly cinema sales, suggest that …
The Bank of England’s 50bps emergency interest rate cut, from 0.75% back to the record low of 0.25%, and other measures aimed to support loans to businesses announced this morning is the first salvo in a day of coordinated action designed to cushion the …
As central forecasts for GDP growth are less useful during times of high uncertainty, this Update illustrates some alternative scenarios of how the coronavirus could influence the UK economy based on the government and households using different measures …
10th March 2020
The fall in gilt yields into negative territory on Monday implies that investors think that the Bank of England will cut interest rates to emergency levels and keep them there for the foreseeable future. We expect a 25bps cut to 0.50% soon. But as the hit …
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 11 th March and to provide some instant context. We will send a Rapid Response and a Focus …
The Bank of England has made it clear that policy action to cushion the economy from the coronavirus is on its way, the only questions are what, how much and when. In the face of today’s meltdown in the financial markets, the Bank may be forced to act …
9th March 2020
With the number of coronavirus cases in the UK having reached 116 and rising, we now think that a change in consumer behaviour and working practices will weigh on economic activity this year. Consumer spending is particularly important in the UK, …
6th March 2020
The economy started the year on a strong note, but it is only a matter of time before it succumbs to the effects of the coronavirus. To reflect the weaker global backdrop and the likelihood that measures implemented to limit the spread of the virus will …
5th March 2020
The new Chancellor Rishi Sunak’s first priority in the Budget on Wednesday 11 th March will be to deliver a package of measures to help those areas of the economy likely to be hit hardest by the coronavirus outbreak. He will presumably also get things …
4th March 2020
Q1 was shaping up nicely until coronavirus got involved The small rise in the all-sector PMI in February suggests that Q1 was shaping up to be a good quarter for the economy. But we suspect the survey will take a turn for the worse in March as the …
In a change to our previous forecast, we now think that the economic effects of the coronavirus will result in GDP growth slowing to just 0.7% this year and will soon prompt the Bank of England to cut interest rates from 0.75% to 0.50%. That said, we …
3rd March 2020
In light of the accelerating spread of the coronavirus – and the economic disruption that is likely to follow – we are pulling down our GDP growth forecasts for Q1 and Q2 of this year. Growth is likely to rebound over the second half of the year, but most …
2nd March 2020
The 11% fall in UK equity prices this week shows that the situation is changing rapidly and that the financial markets appear to be pricing in the coronavirus triggering a marked weakening in the global and UK economies. At the same time, the markets have …
28th February 2020
The failure of the Chinese economy to recover promptly from the measures put in place to contain the coronavirus means that world demand growth will be softer than we had anticipated this year, but probably a bit stronger next year. As a result, we have …
27th February 2020
Confidence continues to grow but coronavirus may stop the party The European Commission’s Economic Sentiment Indicator (ESI) for the UK concurs with the message from the flash PMIs last week that the UK’s economic recovery continued in February. But …
While we are not convinced that capacity in the construction sector will be an immediate restraint on a big public investment splurge, the inner workings of the government could lessen the amount of money spent. So although a big fiscal stimulus is still …
25th February 2020
We think that the construction sector has the capacity to deliver an increase in public sector investment of around £50bn over the next five years if it is phased in gradually. Unless capacity increases significantly, the government’s manifesto plan to …
24th February 2020
The first official data for January piled more evidence onto our view that the economy will rebound in Q1 2020 after hitting a nadir in Q4 2019. But the growing impact of coronavirus on China’s economy and the weakness in the euro-zone threaten to stifle …
21st February 2020
Sustained strength of PMIs confirms economy has turned a corner The continued strength of the PMIs in February proves that the surge in January wasn’t a flash in the pan and gives us confidence in our view that economic growth will pick up in the first …
Households reopen their wallets January’s retail sales figures showed that December’s election result gave consumers the confidence to reopen their wallets. The more recent flooding and effects of the coronavirus may hinder sales in February and March. …
20th February 2020
Reversing the recent fall The rise in CPI inflation for the first time in six months in January was in line with the Bank of England’s expectations, so this is unlikely to move the dial on the outlook for interest rates. The jump in CPI inflation from …
19th February 2020
When faced with the choice of deciding whether to impose higher import tariffs on goods (exposing consumers to higher inflation) or lower ones (exposing firms to greater competition), the government’s latest tariff proposals suggest it has plumped for the …
18th February 2020
Solid employment growth, but wage growth slowing The larger-than-expected rise in employment in December suggests that the labour market joined the rest of the economy in turning a corner at the end of last year. However, pay growth is softening, which …
While the weakening in the global economy has reignited a downside risk to the UK economy, at the moment we don’t think it will derail the recovery in domestic activity that appears to be in train. Around the turn of the year both we and the MPC took …
17th February 2020
The resignation of Sajid Javid as Chancellor on Thursday and the promotion of Rishi Sunak raises the chances that a relaxation of the fiscal rules allows government policy to boost the economy by more than we expect over the next few years. (See here .) …
14th February 2020
We had already expected something big on fiscal policy in the Budget. But the change in Chancellor increases the chances that new, less restrictive fiscal rules are announced, and that government policy boosts the economy by more over the next few years …
This Update was originally sent to clients as a Rapid Response immediately after the announcement that Sajid Javid was being replaced as Chancellor by Rishi Sunak at 12pm on 13 th February 2020. The unexpected resignation of Sajid Javid as Chancellor and …
13th February 2020
Stagnation in Q4, but Q1 will be better While the first estimate of Q4 GDP showed that the economy stagnated at the end of last year, this is old news and less important than the timelier data that suggests the economy has since turned a corner. The GDP …
11th February 2020
This week brought the clearest sign yet that the economy has turned a corner, with January’s all-sector activity PMI consistent with a 0.3% q/q expansion in GDP in Q1, up from a probable 0.1% decline in Q4. (See here .) Admittedly, with the moves in the …
7th February 2020
Signs that the economy has turned a corner support our view that interest rates won’t be cut from 0.75% this year. After all, the activity PMIs are no longer in the territory where rates have been cut by 25 basis points before. (See Chart 1.) And they …
6th February 2020
It’s possible that consumer spending stagnated or even fell outright in Q4. But this is not too worrying as stronger growth in incomes, a fall in uncertainty and a rise in confidence should lead to a rebound in consumer spending this year. Consumer …
5th February 2020
Survey reaffirms post-election rebound January’s all-sector PMI provides the clearest sign yet that the economy has turned a corner and supports our view that the next move in interest rates may actually be up, albeit not until 2021. The upward revision …
Much depends on if and when the outbreak of coronavirus in China is brought under control. But as it stands at present, the effects on the UK economy have probably been negligible. Our China Economics service is the place to look for analysis of the …
3rd February 2020
We think that the coming fiscal stimulus will raise annual GDP growth by about 0.6ppts this year and 0.25ppts in 2021. This is part of the reason why we expect GDP growth to beat the consensus forecast by rising to 1.8% in 2021 and helps to explain our …
