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Brexit preparations force spending higher The worst October for the public finances for five years won’t prevent whoever wins the election embarking on a fiscal splurge. Borrowing appears to have been higher than expected due to Brexit preparations, and …
21st November 2019
Labour would probably borrow a lot more than the Conservatives if it won the election, but we doubt gilt yields would soar. Labour’s fiscal plans wouldn’t bring debt sustainability into question, inflation expectations are unlikely to leap and relatively …
20th November 2019
November’s “Black Friday” boost to retail sales volumes will actually show up in December’s retail sales figures this year. More importantly, consumers may not be in the mood to spend freely over the Christmas period. As a result, retailers may find just …
The lessons for the UK from the election of a Labour government in New Zealand in 2017 are that businesses and financial markets will probably put more weight on policies that could restrain economic growth than the prospect of much looser fiscal policy. …
18th November 2019
With employment falling and GDP contracting in September, the government will have been glad to close the door on Q3. But looking out of the window onto Q4, the view isn’t much better. It has (thankfully) been a relatively quiet week on the political and …
15th November 2019
Disappointing start to Q4 October’s fall in retail sales volumes was especially concerning as stores refrained from raising prices at all. This heightens the risk that consumer spending growth could slow in Q4 from Q3’s 0.4% q/q, adding further woe to the …
14th November 2019
Easing inflation leaves door open to interest rate cuts October’s consumer price inflation figures will do nothing to affect the Bank’s view – expressed at its meeting earlier this month – that interest rates will most likely be raised eventually if there …
13th November 2019
Resilient in the face of weak GDP growth After GDP growth disappointed expectations yesterday, the smaller than expected fall in employment in the three months to September was something of a relief. At the margin, the figures reduce the immediate need …
12th November 2019
If the Conservative Party wins an outright majority in the upcoming general election on 12 th December, as polls suggest is the most likely outcome, there is potentially significant upside for UK equities. Since the 2016 referendum, UK mid- and large-cap …
11th November 2019
Burst of growth in Q3 doesn’t change picture of economy in limbo While the burst of growth means that the economy avoided a recession in Q3, it’s pretty clear that underlying growth is soft and that the risks to our Q4 GDP forecast of 0.2% q/q are to the …
The policy debate has shifted this week to just how large a fiscal stimulus is in prospect and whether the Monetary Policy Committee (MPC) might soon cut interest rates. We warned this would happen. We were the only ones to predict that any MPC members …
8th November 2019
The Monetary Policy Committee’s (MPC) dovish shift at its November meeting leaves the Committee unsure in which direction the next change in interest rates will be. As well as softening its language on the chances of rate hikes if there were a Brexit …
7th November 2019
With the Conservatives and the Labour Party now competing on fiscal profligacy rather than fiscal prudence, it is unsurprising that the Chancellor Sajid Javid announced today a full rewrite of the fiscal rules. But the new rules still allow a big fiscal …
Although we estimate that the 0.2% q/q contraction in GDP in Q2 was followed by a 0.4% q/q rise in Q3, it is clear that the economy is spluttering rather than firing on all cylinders. We think that GDP will rise by just 0.2% q/q in Q4. Seeing as the …
6th November 2019
Although the Office for Budget Responsibility (OBR) won’t expose the full deterioration in the public finances when it updates its forecasts on Thursday, it’s clear that it is only a matter of time before borrowing smashes through the targeted level. That …
This Update clarifies the tweaks to our forecasts for the economy and the financial markets triggered by the delay to Brexit to 31 st January and the recent changes to our forecasts for the global financial markets. Although the numbers are slightly …
5th November 2019
PMIs recover, but from a very low level The recovery in the services PMI in October will allay fears that the largest sector of the economy is slipping into recession. Nonetheless, the survey suggests that the risks to our forecast that GDP growth will …
The confirmation that Brexit has been rescheduled from yesterday to the 31 st January cleared the way for MPs to agree to a general election on Thursday 12 th December that could resolve Brexit. With the Conservatives well ahead in the polls, a …
1st November 2019
Consistent with manufacturing recession While the manufacturing PMI recovered in October from September’s extremely weak level, it is still consistent with a recession in the manufacturing sector. The PMI reading of 49.6 (up from 48.3 in September) …
The economy may be on a path that would eventually prompt the MPC to cut rates… …but the chance of a Brexit deal in January will keep the toolbox in the closet for now Unless the headwinds of weak global growth and Brexit uncertainty fade, the next move …
31st October 2019
With England and South Africa battling for the right to lift the Webb Ellis Cup in the Rugby World Cup final this weekend, we’ve been pondering which of the two economies would come out on top in a head-to-head, while we think England will take the …
A general election on 12 th December may seal the fate of Brexit but could also have some other important implications. The economy and financial markets may either have to cope with a combination of a hardish Brexit and business friendly policies under …
29th October 2019
The weakness in business investment since the EU referendum has been concentrated in IT & machinery, transport and non-residential buildings so those areas may enjoy the biggest rebound if there is a Brexit deal, but they would also continue to suffer the …
This Update was originally sent to clients as a Rapid Response immediately after the vote in Parliament on whether to hold a general election. Although Parliament tonight voted against holding a general election, it seems likely that MPs will soon change …
28th October 2019
Although the pound has fallen back from its recent high of $1.30 on Monday to $1.28 now, you could say that it has been remarkably stable given that, technically, if nothing changes in the coming days there would be a no deal Brexit in just six days’ …
25th October 2019
The political benefits of Boris Johnson’s Brexit deal may also prove to be its economic downsides. If the deal is eventually passed in its current form there would effectively still be a chance of something like a no deal Brexit in December 2020. If that …
24th October 2019
One way or another, the UK is destined for looser fiscal policy. How much and in what form is unclear, but the one thing that is clear is that it will require a new set of fiscal rules. There are many options and we do not know for sure what the …
This Update was originally sent to clients as a Rapid Response immediately after the votes in Parliament on 22 nd October on Boris Johnson’s Brexit deal. Tonight’s votes in Parliament on Boris Johnson’s Brexit deal suggest that Brexit will probably be …
22nd October 2019
Looser fiscal policy on the way, unless Brexit is delayed September’s better-than-expected public finances figures do not change this year’s overarching themes of higher spending and borrowing. Nonetheless, there is a high chance that the Chancellor will …
This Update analyses the key Brexit events in Parliament this week and highlights at what point we would be able to conclude that a Brexit deal is either done or dead. As such, the next week or so will be pivotal in determining whether the pound takes …
21st October 2019
This Update was originally sent to clients as a Rapid Response immediately after the vote on 19 th October on Boris Johnson’s Brexit deal. The decision by Parliament to essentially postpone a meaningful vote on Boris Johnson’s Brexit deal until after a …
19th October 2019
Last week, we said that there were two big obstacles in the pathway to a Brexit deal. With the UK and the EU having come to an agreement, one hurdle has been overcome. (See here .) The second, whether Parliament passes that agreement, will be clear enough …
18th October 2019
This Update was originally sent to clients as a Rapid Response immediately after the announcement on 17 th October that the UK and EU had agreed a Brexit deal. If the Brexit deal agreed by the EU and UK earlier today passes through Parliament, then there …
17th October 2019
Disappointing end to Q3 September’s retail sales figures were perhaps a bit of a relief given the intense Brexit uncertainty, but were hardly a picture of strength. However, if a Brexit deal is indeed agreed soon, household spending growth should regain …
If a Brexit deal is signed and ratified then sterling could rise further over the next few weeks or months, from $1.28 to $1.35 (€1.17). If interest rates were then to rise, sterling could hit $1.40 (€1.22) in 2021. At the end of July, when the chances of …
16th October 2019
Inflation surprisingly subdued in September Unchanged CPI inflation of 1.7% in September was softer than either we or the consensus (1.8%) expected which might delay interest rate hikes following a Brexit deal and increase the chances of rate cuts if …
A Brexit deal is still unlikely, but it would remove much of the uncertainty that has caused firms to hold off investment projects and consumers to rein in their spending, and would therefore result in GDP growth, interest rates, the pound and bond yields …
15th October 2019
Deeper cracks appearing in the labour market The drop in employment and tick down in wage growth in August is further evidence that deeper fissures are starting to appear in the labour market. However, the unemployment rate is still low and wage growth …
Overview – Regardless of what happens with Brexit between now and 31 st October, the recent weakening in both the global and domestic data has led us to revise down our GDP growth forecasts in all three of our scenarios based on different Brexit outcomes …
14th October 2019
Still significant obstacles on the pathway to a deal After more than three years since the Brexit vote, it only took a two-hour chat between Boris Johnson and his Irish counterpart, Leo Varadkar, on Thursday to find a “pathway to a possible deal”! It’s …
11th October 2019
Recession fears banished, for the time being GDP fell on the month in August, but thanks to solid increases in May, June and July any remaining concerns that the economy fell into recession in Q3 have been well and truly banished. GDP fell by 0.1% m/m in …
10th October 2019
The government’s latest no deal tariff plans released yesterday provide us with some reassurance that although there will be some hit to the economy from higher tariffs it won’t be as big as most feared. Although there’s little the UK can do to prevent …
9th October 2019
In a change to our previous forecast, we now think there’s a fair chance that the Bank of England will cut interest rates if Brexit is delayed. That means interest rate cuts now feature in two of our three Brexit scenarios and would only be avoided if …
8th October 2019
Boris Johnson unveiled his “two borders, four years” proposal for a Brexit deal this week. The first border, comes from Northern Ireland aligning with some EU regulations after the UK has left the EU. This would create a border in the Irish Sea between …
4th October 2019
When put on a like-for-like basis, the Bank of England’s assumptions for how weak the economy would be in the 12 months after a no deal Brexit are not that different to our own. And both we and the Bank think that after a no deal economic growth would …
3rd October 2019
Losing momentum The drop in the IHS/Markit services PMI to a six-month low of 49.5 in September means that all three sector PMIs are now below the 50-mark which theoretically separates expansion from contraction, reigniting concerns that the economy is in …
A continued decline in the natural rate of unemployment over the past 15 years means that there is probably a little bit more slack in the labour market than indicated by the near-record low unemployment rate. As a result, wage growth is unlikely to …
2nd October 2019
Manufacturing PMI still pointing to drop in output Despite the rise in the manufacturing PMI in September, it remains at a low level and suggests the industrial sector contracted again in Q3. However, we still doubt that manufacturing will pull the …
1st October 2019
