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The reaction to Theresa May’s “new” Brexit deal suggests that the chances of a deal have fallen and the chances of another delay, a no deal, no Brexit and/or a general election have all risen. It’s hard to build this into our forecasts, but the risk is …
22nd May 2019
CPI Inflation rose back above the Bank of England’s 2% target in April for the first time since December. And while we suspect that inflation is likely to remain above 2% for the rest of the year, as strong wage growth prompts firms to raise prices, we …
A policy rule suggests that for the time being the financial markets may be justified in taking a relatively sanguine approach towards the risk of rising interest rates. But should a Brexit deal be reached and the political uncertainty diminish, this …
21st May 2019
If you have been enjoying the respite from incessant Brexit headlines over the past few weeks, I’m afraid it’s bad news. This week’s fall in the pound to a three-month low of $1.28 reflects Brexit creeping back onto investors’ radars. And even if a Brexit …
17th May 2019
The labour market is running hot, but some people doubt that wages are rising by more than 3% a year. That is probably because higher pay growth is being driven by the small share of workers switching jobs for a large bump in their salary, as opposed to …
16th May 2019
Despite the unemployment rate edging down to a fresh 45-year low, March’s figures painted a picture of a softening labour market. That is in line with our forecast for employment growth to ease this year, but we don’t think the unemployment rate will rise …
14th May 2019
Preparations for the moving target of Brexit day flattered the Q1 GDP figures and therefore could give way to a hangover in Q2. But this should just be a timing effect. How the labour market performs will be far more important for underlying growth. … …
10th May 2019
The Q1 GDP figures presented a slightly stronger picture of the economy’s recent performance than we had expected. But with some activity likely to have been brought forward, we doubt Q2 will be as good. … GDP: First Estimate (Q1 …
The sluggishness in CPI inflation can partly be explained by factors that will prove temporary. And with cost pressures building, there is scope for services inflation to push the CPI rate higher than the Bank of England expects, bolstering the case for …
9th May 2019
While the release of the GDP data for Q1 this Friday will probably show that the economy grew at a healthy clip, we doubt that Q2 will be as good. … What Q1 will give, Q2 may take …
8th May 2019
The most surprising news from the Bank of England’s Inflation Report this week was not the suggestion that interest rates need to rise more quickly than the markets currently anticipate, but the strength of the message. Governor Carney was unusually …
3rd May 2019
With Brexit having been delayed until 31st October, the slightly more upbeat tone of April’s IHS Markit/CIPS services survey was not too surprising. However, the PMI remained at a low level and we suspect that GDP growth slowed at the start of Q2. … IHS …
Even after the announcement of the six-month Brexit delay, there was never much chance that the MPC would raise interest rates from its current rate of 0.75% with the possibility of a no deal Brexit still hanging over the economy. But the hawkish tone of …
2nd May 2019
With CPI inflation still subdued, firms’ profit margins appear to have borne the brunt of the recent rises in wage costs. However, we suspect that firms will pass on rising costs to consumers in time, resulting in higher inflation and prompting the Bank …
1st May 2019
The subdued rise in borrowing in March may be because Brexit has sapped households’ desire to borrow to buy big items. At the aggregate level, low interest rates mean that debt is still manageable. … Shying away from borrowing to spend on big …
The fall back in the manufacturing PMI in April was to be expected after activity was boosted by Brexit preparations ahead of the original Brexit date of 29th March, and suggests manufacturing output will soon return to stagnation after a brief growth …
Given the current political impasse, it is reassuring that the GfK/NOP consumer confidence figure held steady again in April. And with the six-month delay to Brexit removing the chance of an imminent no deal, consumers’ view of the economic outlook has …
30th April 2019
An ageing population should have dragged down participation in the labour force sharply over the past decade, but falling economic inactivity, particularly amongst women, has meant that the participation rate has dodged its demographic destiny. Given that …
29th April 2019
While the next Governor of the Bank of England may change lots of things within the Bank, the economic data will remain the biggest driver of monetary policy. And if Labour won the next general election and changed the Bank’s mandate, that would have a …
26th April 2019
The recent rise in oil prices adds to our view that inflation is likely to be higher over the next couple of years than is widely expected. This only increases the chances that, eventually, the Bank of England will hike interest rates by more than the …
Some of the surge in retail sales in Q1, which has pushed the three-month-on-three-month growth rate back up to the pace seen before the EU referendum in 2016, might have been due to households bringing forward some purchases ahead of the original 29th …
25th April 2019
If the Monetary Policy Committee (MPC) wanted to raise interest rates from 0.75%, the six-month Brexit delay provides it with a window to do so. More likely, though, is that the MPC remains in a state of inertia at the meeting on Thursday 2nd May and for …
The six-month delay to Brexit until 31st October 2019 has put the brakes on interest rate hikes and left the economy travelling in the middle lane, with GDP likely to rise by 1.5% this year. But should a Brexit deal be struck in October, which is our …
24th April 2019
Another fall in the budget deficit to just 1.2% of GDP in 2018/19 puts the public finances on a sustainable footing and gives the Chancellor room to provide a “deal dividend” if there is a Brexit deal or to support the economy if the UK leaves the EU …
The unemployment rate is close to the natural rate, inflation is close to the target and GDP growth is close to the economy’s potential rate, but interest rates are well below most estimates of the long-run neutral rate. This oddity is possible partly …
18th April 2019
Not only did retail sales post a bumper rise in March, but February’s figure was revised up too, adding to the evidence that despite the political chaos, the economy grew at a decent rate of 0.3% q/q in Q1. … Retail Sales …
The surprising softness of CPI inflation in March (it stayed at 1.9%) suggests that weak demand on the high street as Brexit uncertainty reached its peak may have forced retailers to discount their goods. … Consumer & Producer Prices …
17th April 2019
The labour market posted another decent month in February. However, we suspect that February could mark the peak for employment growth as the survey evidence turned down sharply in recent months. … Labour Market …
16th April 2019
The widespread use of digital technology should eventually make it possible to read how the economy is faring earlier and more accurately. The “Faster Indicators” released for the first time by the ONS today are an early venture into this area. But, so …
15th April 2019
The recent Brexit-related fall in investment won’t be a big barrier to an eventual rebound in GDP growth. After all, investment hasn’t fallen by much and in the near term how efficiently capital is used is far more important for growth than how much of it …
A lot of the chatter about how stockbuilding ahead of Brexit has boosted GDP growth in Q1 ignores the fact that businesses buy many components from overseas. That’s why imports have been rising at a faster clip. And, of course, imports are a drag on GDP …
12th April 2019
The second delay to Brexit, to 31st October 2019, and developments overseas have altered the assumptions that underpin our UK economic forecasts. As such, we have tweaked those forecasts. The main takeaways are that both GDP growth and interest rates …
11th April 2019
The EU’s decision in the early hours of Thursday morning to grant the UK a second delay to Brexit, this time for six months until 31 October 2019, removes any remaining risk of a no deal Brexit on Friday but probably delays the chances of a decent rebound …
The initial estimate of GDP was once again stronger than the survey evidence had suggested, providing a reassuring sign that the economy has weathered the Brexit chaos and overseas slowdown well. But if the EU tonight grants a long delay to Brexit, that …
10th April 2019
We are not forecasting a no deal Brexit on Friday. But Brexit has a tendency to bring the unexpected and a no deal is still the default. What’s more, although it may be low risk, it would be high impact. So in this Update we consider what a no deal Brexit …
9th April 2019
With only four full days to go until the UK is due to leave the EU at 11pm on Friday 12th April, this week is potentially crucial. Of course, it’s impossible to know with Brexit whether what looks like a momentous week will turn out to be trivial! But …
8th April 2019
A no deal Brexit still can’t be ruled out next Friday 12th April, but the risk has been significantly reduced by the Prime Minister asking the EU for another delay until 30th June 2019. We suspect the EU will offer a longer extension. That would remove …
5th April 2019
The uncertainty caused by Brexit is helping some parts of the economy and hindering others, but as a whole the economy isn’t doing too badly. An apparent surge in stockbuilding ahead of the original Brexit day of 29th March boosted the Markit/CIPS …
3rd April 2019
With the UK entering the most intense phase of Brexit uncertainty (so far!), the gloomy tone of March’s Markit/CIPS services survey is perhaps not too surprising. While we suspect the survey is overstating the weakness, the risks to our forecast for Q1 …
With Brexit gridlocked, the chances of a general election appear to be rising. Indeed, after the third defeat of her Brexit deal, Theresa May said that “I fear we are reaching the limits of the process in this House”. This Update answers nine questions …
2nd April 2019
The inability of Parliament to reach a consensus on a Brexit outcome in tonight’s second round of indicative votes leaves the economy and the financial markets in limbo and Parliament in one hell of a pickle. After rising throughout the day to $1.31, the …
1st April 2019
Stockbuilding ahead of Brexit undoubtedly flattered the manufacturing PMI in March. Nonetheless, the manufacturing sector should support GDP growth in Q1. And the increase in the employment and new orders balances provide reason to think that some of the …
The original Brexit day (29 th March) is upon us, yet the end point and the consequences for the economy and the financial markets are as unclear as ever. As the dust of this week settles, the four possible outcomes haven’t changed – deal, no deal, no …
29th March 2019
The rejection of May’s Brexit deal by 58 votes means with two weeks and eight hours to go until the UK is due to leave the EU there is still no clear path for Brexit itself, the economy and the financial markets. That’s why the pound fell from $1.30 to …
There are some signs that households are saving more, possibly in response to concerns about Brexit, but consumers aren’t panicking. And a higher saving rate now could lead to a more significant rebound in spending if a Brexit deal is agreed either today, …
Despite the ongoing impasse in Westminster on Brexit, weak GDP growth of 0.2% q/q at the end of last year probably marks a trough. The robust monthly increase in GDP in January and indications that consumer spending growth has picked up since suggest that …
With just two weeks to go until Brexit and uncertainty higher than ever, it is reassuring that the GfK/NOP measure of consumer confidence held steady in March and consumers’ view of both their personal finances and the economic outlook improved a touch. … …
While everyone knows that Brexit explains a big part of the slowdown in GDP growth in recent years, it’s less widely accepted that the global economy needs to take a lot of the blame too. So while Brexit will influence how the economy fares over the next …
28th March 2019
The postponement of Brexit removes the risk of the UK leaving the EU without a deal next Friday. But Parliament is still facing the same four Brexit options it always has; deal, no deal, revoke Article 50 or a significant delay to Brexit by an extension …
22nd March 2019
The delay granted by the EU last night has pushed back Brexit by at least two weeks, from 29th March to 12th April, but four options remain on the table – deal, no deal, no Brexit or another delay. So it still makes sense to have different scenarios for …
