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Confidence strengthens, but unlikely to rise further over next few months Consumer confidence recovered a little in July, but rising concerns about a no deal Brexit could mean that sentiment soon returns to its recent lows. The composite GfK/NOP measure …
31st July 2019
Our estimates suggest that if a no deal Brexit was fully priced into the market the pound would fall from $1.22 (€1.09) now to about $1.15 (€1.05) or a little lower. Over the past few days the pound has weakened to two-year lows of $1.22 and €1.09 in …
30th July 2019
Spending on cars has fallen sharply since the EU referendum, and unless a Brexit deal is agreed we suspect that it will remain a drag on consumer spending growth for a few years yet. Since the EU referendum in June 2016, real spending on cars has declined …
29th July 2019
Looser fiscal policy on the way It came as no surprise that Boris Johnson became the UK’s new Prime Minister this week. ( See here .) And in his first speech in Parliament on Thursday there was no sign of him rowing back on his campaign pledges for the UK …
26th July 2019
Beware of a misleading hawkish signal Key message is that the MPC has become less hawkish, but not as dovish as the markets Far more interesting than the probable decision by the Monetary Policy Committee (MPC) to leave interest rates at 0.75% on Thursday …
25th July 2019
Any spending spree by the new administration will probably be accompanied by a rise in borrowing, which could breach the current fiscal rule, especially if there is a no deal Brexit. However, fiscal rules are made to be broken, so we don’t think that this …
24th July 2019
Despite his hard-line stance on the campaign trail, there is no way of knowing how Boris Johnson will handle Brexit once he becomes Prime Minister tomorrow. But it’s going to be turbulent and the chances of a no deal Brexit (and a general election and/or …
23rd July 2019
Were the UK an emerging market the hedge fund vultures would already be circling following the rise in the current account deficit to 4% of GDP last year – the largest in the developed world. While the UK won’t have an emerging-markets style balance of …
22nd July 2019
The Office for Budget Responsibility’s (OBR) public finance forecasts in a no deal scenario published in its Fiscal Risks Report this week really do look pretty dreadful. We suspect they overdo the gloom a bit. But either way, whether it is Boris Johnson …
19th July 2019
Heading off track June’s public finances figures continued the underlying deterioration in the fiscal position evident since the beginning of the financial year and provided a timely reminder that the next Prime Minister won’t get a free “fiscal lunch” in …
Signs of life after a soft patch The rebound in retail sales in June was a big relief as it shows that there is some life in household spending yet and suggests that the overall economy may have avoided a contraction in Q2. The 1.0% m/m rise in retail …
18th July 2019
In view of the wider interest, we are also published this Global Markets Focus to clients of our UK Economics Service. While we think that the twists and turns of the UK’s journey out of the European Union will have a bearing on Gilts and sterling, that …
17th July 2019
Few signs of a rise in inflationary pressure There is little pressure for the MPC to adjust interest rates in either direction with CPI inflation remaining at the Bank of England’s 2% target for a second consecutive month in June. The continued absence of …
Overview – As Brexit could dramatically alter the near-term outlook for the economy, we are continuing to publish three sets of forecasts based on different Brexit outcomes (deal, no deal and more delays). But there are three common themes to this …
16th July 2019
Weaker employment growth probably here to stay The further slowdown in employment growth in May looks set to continue over the rest of this year as firms take a breath after the hiring spree in the first quarter. However, the labour market should still …
The strength in consumer spending has been crucial to the economy’s resilience over the past year but there are three reasons why many people think that the consumer sector is living on borrowed time – namely an unfavourable outlook for incomes, low …
15th July 2019
Despite the rebound in monthly GDP growth from -0.4% m/m in April to +0.3% m/m in May, the economy probably just about contracted in Q2 as a whole. ( See here .) Some of that is just payback from activity being brought forward from Q2 into Q1 ahead of the …
12th July 2019
While it is recognised that political developments, such as a no deal Brexit and a Labour government, have the capacity to send the economy in different directions, it’s not as well known that three economic trends are in train regardless – looser fiscal …
11th July 2019
Possible contraction in Q2, but recession unlikely Despite the rebound in monthly GDP in May, the economy may have contracted in Q2 as a whole. But it’s going to be close and we doubt we’re heading for a recession as GDP will probably rise in Q3 anyway. …
10th July 2019
Investors now think the next move in interest rates will be down. The black line in Chart 1 shows the market-implied probability of the MPC cutting rates by the meeting on 30 th January has jumped from 27% to 54%. As a result, the 10-year gilt yield fell …
5th July 2019
Relatively resilient services sector won’t prevent contraction Following the falls in the manufacturing and construction surveys, the smaller decline in the headline business activity balance of the services PMI, from 51.0 in May to 50.2 in June, was a …
3rd July 2019
As long-term clients will know, we have been publishing different forecasts for the economy based on two different Brexit outcomes, “deal on 31 st October” and “no deal on 31 st October”. We are now adding a third – “repeated delays” in which the Brexit …
1st July 2019
Brexit comedown and weak global economy weigh on manufacturing The drop in the manufacturing PMI from 49.4 in May to 48.0 in June (consensus 49.2) takes it to its lowest level since February 2013 and indicates that the sector is still suffering from a …
The chances of the economy escaping a quarterly contraction in Q2 seem to be receding in light of the latest surveys and official data. Indeed, we can take less comfort from Q1’s GDP figures now that we have the second estimate. Stockbuilding is now …
28th June 2019
Boost from preparing for Brexit will reverse GDP growth was unrevised at 0.5% q/q in the first quarter of the year, but that probably marked a temporary high as activity was brought forward ahead of the original Brexit deadline. Consequently the economy …
Confidence weakens, but consumer spending should hold up Given the mounting concerns over a no deal Brexit, it is perhaps unsurprising that the GfK/NOP measure of consumer confidence dropped back in June. But with real wage growth strong and inflation …
The MPC struck a markedly more dovish tone in the statement and minutes of June’s meeting compared to May’s. This was partly due to a weakening global and domestic outlook, but the rising chances of a no deal Brexit also helped to shift the MPC to a more …
21st June 2019
While borrowing was higher than expected in May, the underlying picture is healthier. That should give the next Prime Minister greater scope to borrow more to increase spending or cut taxes without breaking the fiscal mandate. … Public Finances …
The outlook for the economy should be similar with either Boris Johnson or Jeremy Hunt at the helm. After all, both have committed to loosening fiscal policy. And although both are willing to leave the EU without a deal (Johnson seems keener) either will …
20th June 2019
Given the drop in GDP in April and the fall in inflation back to target in May, there was never much chance that the MPC would raise interest rates from 0.75% today. What’s more, the tone of the statement and minutes followed the lead from the Fed and the …
Having grown unusually quickly in Q1, helped on by good weather and perhaps some purchases being brought forward ahead of the original Brexit date, retail sales growth has returned to its usual pace. That is another reason to think GDP will stagnate in …
CPI inflation is likely to bob about the 2% mark for the next couple of months, but there are still reasons to think that it will drift up again towards the end of the year. … Consumer & Producer Prices (May …
19th June 2019
Even if some of the weakness in activity in April comes back in May, GDP growth will still struggle to hit the Bank of England’s Q2 forecast of 0.2%. As such, we doubt that they will raise rates at their meeting next week and probably won’t increase rates …
14th June 2019
There isn’t much chance that the Monetary Policy Committee (MPC) will raise interest rates from 0.75% at its meeting on Thursday 20th June, but we expect the MPC will use the opportunity to repeat their warning from May that the markets are significantly …
13th June 2019
The labour market remained relatively robust in April, despite the drop in activity in the rest of the economy. While we do expect employment growth to slow over the rest of this year as the available pool of labour dries up, wage growth will probably …
11th June 2019
April’s GDP figures suggest that the Brexit hangover in Q2 has been heavier than we had expected. We had previously thought GDP would rise by 0.2% q/q in Q2 as a whole, but it’s now possible that GDP fails to increase at all or even contracts. … Monthly …
10th June 2019
Economic growth was virtually the same in Q1 2019 as it was in Q2 2016 when Theresa May came to power. However, the UK has still underperformed the G7 average. And given that it looks increasingly likely that there will be a no deal Brexit or another …
7th June 2019
While the economy managed a stronger-than-expected expansion in Q1, this might be as good as it gets this year. The economic news for Q2 so far has been undeniably weak. And if there is a further Brexit delay or a no deal – both of which seem more likely …
6th June 2019
Just as we had expected, global forces have contributed to 10-year gilt yields falling below 1.00% and the pound weakening to a recent low of close to $1.25. If we are right in thinking that the markets will soon become even more worried about the outlook …
5th June 2019
May’s IHS Markit/CIPS report on services was thankfully not as bad as the manufacturing and construction surveys released earlier this week. Nonetheless, it seems clear that the economy has lost momentum since the start of the year. … IHS Markit/CIPS …
While the 12 candidates for the leadership of the Conservative party are divided over the best approach to Brexit, they seem reasonably united in calling for looser fiscal policy. That could give the economy a boost next year and may well lead to higher …
4th June 2019
The sharper-than-expected drop in the manufacturing PMI from 53.1 to 49.4 means that the index is now at its lowest level since directly after the referendum in July 2016, and suggests that the sector will slip back into contraction as the boost from …
3rd June 2019
Reassuringly, following the raft of weak survey data released this week, consumer credit growth held up well in April. And with the labour market healthy and interest rates only likely to rise gradually, if at all, we doubt a retrenchment in household …
31st May 2019
The economic news for Q2 so far has been pretty poor. And we wouldn’t be too surprised if Q1’s expansion is the fastest rate of growth that the economy can muster for some time. Meanwhile, the ever increasing number of Conservative MPs queueing up to …
Consumers appeared unfazed by the political chaos, with the GfK/NOP measure of consumer confidence rising to a fresh eight-month high in May. But with the economic fundamentals of consumer spending likely to become less supportive, this improvement is …
Some of the surge in consumer spending growth from 0.3% q/q in Q4 to 0.7% q/q in Q1 might have been due to households bringing forward purchases ahead of the original 29th March Brexit deadline. If so, then it seems likely that consumer spending growth …
28th May 2019
The announcement by the Prime Minister that she will resign appears to have generated even more political uncertainty for the Bank of England to deal with. The Bank will be thankful, then, that inflation remains close to the 2% target. But if by early …
24th May 2019
Away from this morning’s political developments, April’s retail sales figures were better than most had feared. Nonetheless, the figures still suggest that GDP growth will be weaker in Q2 than in Q1. … Retail Sales …
The resignation of Prime Minister, Theresa May, supports our recent view that the chances of a Brexit deal have fallen and that the chances of another delay and a no deal Brexit have risen. While the financial markets have probably already priced this in, …
Yesterday’s revelation that inflation in April rose above the Bank of England’s 2% target captured the headlines, but inflation was actually weaker than we had expected. A closer inspection suggests that the downside surprise will be a one-off, leaving us …
23rd May 2019
