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Don’t expect much from the Budget was the message that came through loud and clear from David Cameron’s speech last week. And barely ten minutes before the Prime Minister spoke, the MPC announced it was leaving its QE programme on hold. The Government may …
11th March 2013
The construction sector has endured a terrible recession, with double-digit declines in output and employment. In theory, there is scope for a sharp comeback. But given the squeeze on credit and public sector building and the possibility of a shift in …
7th March 2013
Although the Monetary Policy Committee (MPC) left policy on hold again today, we expect that it will not take much to swing a majority of members in support of more stimulus in the near future. While this will probably, in part, take the form of more …
Tomorrow’s MPC meeting marks the fourth anniversary of official interest rates reaching their record low of just 0.5% in March 2009. We doubt that they will rise before the second half of 2015 at the earliest and think that some sort of rate cut is more …
6th March 2013
The economy is still flirting with a further contraction in GDP in the first quarter. Indeed, the weighted average of the three CIPS surveys in February suggested on the basis of past form that output will flatline in Q1 at best. Granted, unusually bad …
5th March 2013
The slight improvement in February’s CIPS/Markit report on services could well be the decisive factor that prevents the MPC from restarting its quantitative easing programme this week. But the business surveys are generally still at very low levels and we …
On the face of it, February’s BRC Retail Sales Monitor suggested that a resurgence in consumer spending is underway. But temporary factors can likely explain much of that month’s strong growth. At least in the near-term, sales are likely to see a return …
There is a reasonable chance that quantitative easing (QE) is resumed at this month’s Monetary Policy Committee (MPC) meeting. The Committee is taking a more flexible approach to the inflation target. Three members voted for more QE in February. And last …
4th March 2013
The second set of data on the Funding for Lending Scheme (FLS) suggested that take-up of the scheme is increasing, but that lending is not yet rising as a result. … Funding for Lending Scheme not boosting lending …
Attention last week turned swiftly from the UK’s downgrade to Paul Tucker’s comments about negative interest rates. Even if the MPC does not actually go down this route, it is heartening that even those who did not vote for more QE in February are open to …
Ostensibly, January’s household borrowing figures suggested that that the pick-up in credit growth seen in recent months is tailing off. However, the bad weather in January is likely to have played a role in dampening activity. On a more positive note, …
1st March 2013
Growth of the broad money supply turned up in January, although we suspect that seasonal effects may have played a role. Meanwhile, bank lending remains weak although it is probably still too soon for the effects of the Funding for Lending Scheme (FLS) to …
February’s CIPS manufacturing survey added to evidence that it is touch and go whether the economy has avoided entering a triple-dip recession. … CIPS Report on Manuf. (Feb.) & Mortgage Approvals …
February’s unchanged level of consumer confidence is consistent with evidence from the CBI’s Distributive Trades survey that the consumer sector is lacking momentum. Whether last week’s credit rating downgrade might knock confidence is debatable, but the …
28th February 2013
Real household spending increased unexpectedly in Q4 of last year, leaving annual growth at 1.5%, the strongest rate since Q3 2010. This rise was particularly impressive given the downward impetus to spending from the reversal of Q3’s Olympics-related …
27th February 2013
The second estimate of Q4 GDP confirmed that the economy finished 2012 on a weak footing. And with signs that activity has struggled to pick up at the start of 2013, a triple-dip recession can still not be ruled out. … GDP: Second Estimate & Expenditure …
We think the biggest falls in the pound may now be behind us. Granted, Moody’s decision to strip the UK of its AAA rating drove the currency down even further early on Monday. But sterling was fairly stable yesterday and could benefit soon from a shift in …
The sanguine market reaction to the loss of the UK’s triple-A credit rating begs the question of whether it might actually have some positive effects on the economy. But the key point is that the downgrade reflects the enormous challenges still facing the …
26th February 2013
February’s CBI Distributive Trades Survey suggested that the momentum enjoyed by retailers in the first month of the year is fading. Pressures on household budgets, not least the recent jump in petrol prices, mean that this slowdown is likely to …
Moody’s downgrade of UK government debt from Aaa to Aa1 is unlikely to prompt any major changes to the Government’s fiscal plans, but underlines the weak outlook for the economy. … Rating downgrade underlines economic …
25th February 2013
We estimate that Canada's economy grew by roughly 0.5% annualised over the entire second half of last year and is likely to perform little better over the first half of this year. Trade competiveness challenges, lower Canadian oil prices and the beginning …
Stripping out the one-off factors affecting the numbers, January’s public finances figures revealed a modest improvement on last year’s outturn. But the big picture is still that the downward progress of public borrowing has ground to a halt. … Public …
21st February 2013
While some of the pound’s recent fall probably reflects expected changes in monetary policy – the so-called “Carney short” – it has also reflected the growing view that the UK’s economic outlook is nearly as bad as the euro-zone’s. But there are reasons …
20th February 2013
February’s MPC minutes provided another clear demonstration of the Committee’s increasingly flexible approach to inflation targeting. We continue to think that more QE is only a few months away. … MPC Minutes (Feb.) & Labour market …
Halfway through the parliament, the coalition’s fiscal plans are showing sizeable cracks. But any changes to the plans are likely to be modest, maintaining the need for strong monetary support. … Are the Government’s fiscal plans …
19th February 2013
Recent developments have darkened the outlook for inflation and therefore imply that the squeeze on real pay is likely to persist to the very end of 2013. The recent rise in oil prices suggests that petrol prices will rise by around 3% in February. And …
18th February 2013
We are approaching the fourth anniversary of official interest rates reaching a record low of just 0.5% in March 2009 and concerns have been growing about the damage caused by such a prolonged period of low interest rates. However, raising interest rates …
The MPC demonstrated quite clearly last week that it doesn’t have to wait for the new Governor to arrive to put flexible inflation-targeting into action. But Mervyn King continued to sound defeatist about what else monetary policy can do, suggesting that …
The anchoring of inflation expectations is seen as one of the great successes of the current inflation targeting regime and is enabling the MPC to take a more flexible approach to meeting the target. But there are signs that the anchor is starting to …
15th February 2013
January’s surprise fall in the official measure of retail sales volumes has brought the recent run of better economic news to an abrupt end. While most of this weakness appears to have reflected the impact of the month’s particularly heavy snow, the …
Today’s figures from the ONS highlight how employees’ real earnings have fallen to levels last seen in 2003. And the Bank of England’s February Inflation Report suggested that the squeeze on households’ real pay will continue for the next two years. … …
13th February 2013
The Bank of England has presented another gloomy Inflation Report, showing inflation projected to be stronger over the next couple of years even though the recovery is still expected to be sluggish. But the MPC showed that it is already taking the …
Inflation held at 2.7% for the fourth month in a row in January and is likely to rise further before falling later this year. Tomorrow’s Inflation Report will paint a nasty picture of weak growth and above-target inflation for much of the next two years. …
12th February 2013
Mark Carney suggested last Thursday that, rather than changing the monetary framework altogether, introducing more flexibility into the existing inflation-targeting regime is his preferred option. The MPC is already taking a pretty flexible approach to …
11th February 2013
The continued strength of inflation, resulting in further falls in households’ real pay, raises the question of whether we can ever look forward to a period when it finally eases and so supports rather than scuppers growth. We continue to think that there …
The MPC took the unusual step of issuing a detailed statement alongside its no-change decision last week. It may be that the Committee viewed its decision to reinvest its gilts that mature next month as a policy move that required explanation, especially …
Not only did the Monetary Policy Committee (MPC) leave policy on hold again today, but in his testimony to the Treasury Committee, Governor-to-be Mark Carney sounded less keen than before on a change in the monetary framework. Nonetheless, he was keen at …
7th February 2013
December’s industrial production and trade figures added to evidence that the economic picture improved at the tail end of last year. But the fact that the trade deficit for the year as a whole reached a record high underlines that these improvements are …
Consumers will have to endure a further tough year. We no longer expect consumer spending to rise at all in real terms in 2013. But a recovery should start next year. … Another tough year to get …
6th February 2013
As part of the question of how monetary policy can support the economy further, attention is turning to whether the policy framework might need to be reformed. A new framework won’t solve the UK’s problems on its own. But the current one could certainly …
The contraction in GDP in the final quarter of last year means that the economy may have entered a triple-dip recession. This downturn now looks even more dismal by previous standards. Admittedly, the economy was pulled down by temporary factors, …
5th February 2013
January’s BRC Retail Sales Monitor suggested that retailers managed to escape relatively unscathed from the bad weather in the middle of the month. But with consumer confidence still low and real pay falling, it seems unlikely that the high street can …
January’s CIPS/Markit report on services echoed the other data released in recent days suggesting that the economy has been doing a bit better since the start of the year. But while there is tentative hope that a triple dip may be avoided, there are still …
The UK car industry’s revival shows that it is possible for parts of the manufacturing sector to recover despite weakening demand from the euro-zone. … Car industry shows exports can grow despite EZ …
Although a strong case could be made for resuming quantitative easing (QE) at this month’s Monetary Policy Committee (MPC) meeting, the Committee has given no indication that it is on the cusp of doing more. But the MPC may announce that it is reinvesting …
4th February 2013
Last week, the pound continued to depreciate, capping off the sterling trade-weighted index’s largest drop over a calendar month since February 2010. Sterling’s weakness against the euro seems partly to reflect the markets’ willingness to look beyond …
January’s CIPS report on manufacturing supports other evidence that any upturn in industrial output at the start of the year will be short-lived. … CIPS/Markit Report on Manufacturing (Jan. …
1st February 2013
Companies represent the one sector of the economy which has the means to spend more and so kick-start a recovery. But we are doubtful whether this sector has the motive. A number of factors will continue to act as obstacles to a business-led recovery, not …
31st January 2013
Today’s news that house prices started the year with a modest rise provides some further evidence that the housing market is starting to respond to Government efforts to kick-start the sector. But it remains to be seen if this improvement is sustainable. …
January’s modest uptick in consumer confidence is consistent with evidence from the CBI’s Distributive Trades survey that 2013 got off to a so-so start. But talk of a “triple-dip” recession following last week’s disappointing GDP numbers means sentiment …
