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Markets are likely to be relatively nonplussed if Parliament narrowly rejects Theresa May’s Brexit deal. However, a decisive defeat may elicit significant moves in either direction, depending on whether a no deal Brexit or no Brexit at all seems more …
3rd December 2018
The rise in the manufacturing PMI in November suggests that a substantial fall in manufacturing output in Q4 will be avoided. However, the big picture is that the sector is struggling. … UK Markit/CIPS Manufacturing PMI …
The Bank of England’s harrowing assessment of the consequences of a “ no deal ” Brexit grabbed the headlines this week. But it was designed to be an extreme scenario, and based on some implausible assumptions. The Bank’s projection s based on a deal being …
30th November 2018
The weak tone of GfK/NOP’s Consumer Confidence Survey in November suggests that Brexit uncertainty is starting to weigh more heavily on confidence, which sets the stage for slightly weaker consumer spending growth in Q4. However, the outlook for 2019 …
Annual consumer credit growth continued to slow in October, reaching a three-year low, providing further evidence that consumers’ appetite for unsecured debt is waning a little. But so long as a Brexit deal is struck, we think that a continued recovery in …
29th November 2018
Not surprisingly, the Government report, published today, on the long-run economic impact of various Brexit scenarios is probably a little too pessimistic about the fallout from a no deal Brexit, but a little too optimistic about the impact of a deal …
28th November 2018
This week the Bank of England and HM Treasury will publish forecasts for the economy based on both the “deal” between the UK and the EU agreed on Sunday, and a “no deal, no transition” alternative. As a point of reference, this Update summarises our own …
27th November 2018
A rejection of the Brexit deal in Parliament in mid-December remains a very real prospect. And we would not rule anything out amidst the political chaos that would follow. In our predictions based on the various Brexit scenarios, the economy could grow by …
23rd November 2018
Recent Brexit developments have increased the chances of a second referendum and the possibility of the UK staying in the EU. The lengthy run-up to a second referendum would cause uncertainty to increase in the near term and weigh on economic growth next …
The Political Declaration on the future relationship between the UK and the EU sketches out an “ambitious” Canada-style free trade agreement. However, the absence of a solution to the Northern Ireland issue means that it does little to improve the chances …
22nd November 2018
It is possible that Theresa May will persuade enough MPs to back her deal in Parliament, if only by arguing that the alternatives are even worse. But it is far from certain. In this Update , we set out five possible outcomes if the deal is rejected in …
21st November 2018
Were the deterioration in the public finances in October to continue, the OBR would have to reverse some of the Budget upgrade to its forecast. Borrowing may well overshoot the OBR’s forecast this year if fears of a no deal Brexit intensify. But, as long …
We think that policy makers would move quickly to help the economy to get back on track in the event of a “no deal” Brexit. Despite Mark Carney’s hints to the contrary, the MPC would probably cut interest rates, and the Chancellor would sacrifice his …
20th November 2018
With Theresa May’s EU deal already seemingly dead in the water and speculation rife that a no-confidence vote in her leadership is imminent, the chances of the UK heading for either a “no deal” Brexit or, ironically, no Brexit at all, have risen. … Brexit …
16th November 2018
News that Theresa May could soon face a leadership challenge is the latest twist in the Brexit saga, but even if she survives, the key point is that the chances of her deal being passed by parliament are not looking good. There is therefore still a good …
15th November 2018
October’s official retail sales figures were weaker than expected. But a continued acceleration in real earnings, if a Brexit deal is signed (which admittedly, is looking less likely by the minute) should give household spending a boost next year. … …
The consumer price figures support our view that inflation will probably be back at the 2% target next year. Nonetheless, this is predicated on a Brexit deal being struck. In the event of a “no deal” Brexit, we would not be surprised if inflation …
14th November 2018
In our base case, which is predicated on a Brexit deal being secured and the UK entering into a status quo transition period, a further rise in real earnings should spur a recovery in consumer spending growth. As a result, we expect real spending growth …
13th November 2018
The rise in regular pay growth to a fresh post-crisis high and weak productivity growth suggests that we are right to think that rates will rise further than is priced into markets next year if a Brexit deal is agreed. … Labour Market …
The next few weeks of Brexit negotiations will prove critical in determining whether a deal will be wrapped up by Christmas. We would not be surprised if the talks dragged on into the New Year, in which case the risk of no deal, which is already …
12th November 2018
Concern that increasing Brexit uncertainty is causing the economy to slow sharply, as indicated by the slide in the PMI survey, look overdone. Indeed, other indicators are less downbeat. And while external demand appears to have weakened, this shouldn’t …
We don’t find the apparent slowdown in economic growth at the start of Q4 too worrying. After all, growth was always likely to ease as the boost to the retail sector from hot weather and the football World Cup in the summer faded. And while optimism that …
9th November 2018
The GDP figures confirmed that economic growth accelerated in Q3. But it seems unlikely that the economy will be able to keep up this pace with Brexit uncertainty hanging over it. … GDP: First Estimate …
While new EU emissions tests for cars appear to be responsible for a slowdown in growth in the euro-zone in Q3, we doubt it will have had much impact on UK GDP growth. However, the tests do look likely to have distorted Q3’s expenditure breakdown. … Car …
7th November 2018
The large fall in the PMIs in October suggests that the economy slowed sharply at the start of Q4. Admittedly, some slowdown from rolling three-month GDP growth of 0.7% in July and August always looked likely. Indeed, much of that strength can be put down …
5th November 2018
The big drop in the Markit/CIPS services PMI suggests that GDP growth slowed sharply at the start of Q4, which could be a sign that Brexit uncertainty is increasingly weighing on activity. So long as a Brexit deal is reached, however, there are good …
Philip “the fiscal hawk” Hammond was surprisingly generous in the Budget on Monday, spending his entire windfall from the downward revision to the OBR’s borrowing forecast. This means that rather than acting as a small headwind on growth next year, fiscal …
2nd November 2018
The fiscal loosening announced in the Autumn Budget has prompted us to raise our forecasts for GDP growth and interest rates. In our base case, which assumes a Brexit deal is secured, we now expect GDP to rise by 2.2% next year and by 2.0% in 2020 (up …
1st November 2018
The “Super Thursday” releases from the Bank of England support our view that the Monetary Policy Committee (MPC) will raise interest rates more quickly than markets expect, if a Brexit deal is struck. … MPC hints rates will rise quicker than markets …
The fall in the manufacturing PMI to its lowest level since immediately after the EU referendum suggests that the sector will drag on growth in Q4 as Brexit uncertainty weighs on investment and export orders. … UK Markit/CIPS Manufacturing PMI …
The weak tone of October’s GfK/NOP Consumer Confidence survey is not all that worrying, given that it appears to largely reflect seasonal factors. The bigger picture is that, so long as a Brexit deal is secured, the conditions for a continued recovery in …
31st October 2018
Things are finally looking up for consumers. Not only did yesterday’s Budget provide a welcome boost to households’ finances, but a recovery in real pay growth now appears to be taking root. … Autumn Budget improves consumer …
30th October 2018
As expected, the Office for Budget Responsibility (OBR) gave the Chancellor a helping hand in the Autumn Budget, allowing him to deliver a number of expensive spending pledges, while still managing to reduce headline borrowing from 2019-20 onwards and …
29th October 2018
This checklist is intended to help clients keep track of the key official forecasts and measures announced during the Chancellor’s Autumn Budget speech at 3.30pm Monday 29th October, and to provide some instant context. … UK Autumn Budget 2018 …
September’s household borrowing figures provided further signs that consumers are becoming more wary about loading up on unsecured debt. But households remain upbeat about their financial position so any slowdown should not be too severe. In any case, the …
Although Theresa May succeeded in clinging onto the premiership last week, the possibility of a leadership contest remains a distinct and worrying prospect both for the Brexit negotiations and consequently the economy. Here we address seven key questions …
The Office for Budget Responsibility (OBR) will hand the Chancellor, Philip Hammond, a get-out-of-jail-free card by slashing its forecast for the deficit this year in Monday’s Budget. This will allow Hammond to deliver the pledged increase health spending …
26th October 2018
This Tax Ready Reckoner illustrates the impact of various tax changes on the public finances, allowing the magnitude of any policy changes announced in the Chancellor’s Budget speech on Monday to be gauged immediately. We will be sending a detailed …
The chances of an interest rate rise at the Monetary Policy Committee’s (MPC) meeting from 0.75% on 1st November are pretty slim. We doubt the MPC will move again until the Brexit fog has lifted. … MPC to wait for Brexit fog to …
25th October 2018
The greater-than-expected improvement in the public finances over the past few months, should give the Chancellor a windfall to spend at next week’s Budget. But we suspect that the Chancellor will probably only unveil a small fiscal giveaway of £3bn next …
23rd October 2018
We think that the combination of investors already being heavily net short on sterling, a relatively small increase in the odds of a “no deal” Brexit and the fact that sterling has already fallen significantly probably explains the recent resilience of …
22nd October 2018
The October European Council meeting – long billed as the moment when a Brexit deal would be done and dusted – has come and gone. And the UK and EU positions look as irreconcilable as ever. While we have not changed the assumption that underpins our …
19th October 2018
Given lower-than-expected borrowing in the first five months of the fiscal year to August, the OBR is likely to revise down its forecast for the deficit this year alongside the budget. But lower-than-expected borrowing in September is likely to leave even …
High-street spending put in a strong performance over Q3 as a whole, posting another chunky 1%-plus gain. Admittedly, retail sales have not been a particularly good barometer of overall consumer spending recently. Sales rose by a quarterly 2.0% in Q2, but …
18th October 2018
Although September’s retail sales figures were weaker than expected, sales still rose strongly over Q3 as a whole. And with sustained rises in real pay now in prospect, this should pave the way for a gradual recovery in consumer spending growth in the …
The larger-than-expected fall in CPI inflation in September takes the pressure off the Monetary Policy Committee to act before it knows the outcome of the Brexit negotiations. … Consumer Prices & Producer Prices …
17th October 2018
We think that the drop in employment in the three months to August is more likely to be a blip rather than the beginning of a sustained decline in jobs growth. What’s more, pay growth continued to accelerate, with underlying pay growth reaching its …
16th October 2018
Rising real wage growth should pave the way for a consumer recovery next year. At the same time, the lifting of Brexit-related uncertainty will set the stage for a sharp rebound in investment spending. This should allow GDP growth to quicken from a …
15th October 2018
We are gradually getting a clearer idea of how GDP growth in the third quarter shaped up. And so far, it is looking like it will be a pretty good number. But we doubt that the recent improvement will last. Indeed, a number of temporary factors have …
12th October 2018
The strength of the latest data has led us to revise our forecast for growth in Q3 up from 0.5% to 0.6%, which would make it the strongest quarter since 2016. Nonetheless, annual GDP growth will probably still come in at 1.3% this year, the weakest since …
10th October 2018
