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The unexpectedly strong rise in unsecured borrowing in April adds to the evidence that consumer spending hasn’t collapsed, despite the plunge in consumer confidence and fall in households’ real incomes. (See Chart 1.) Chart 1: Consumer Confidence & …
1st June 2022
Consumers funding spending through borrowing, not savings The solid rise in unsecured borrowing in April suggests that households have turned to credit to support their spending as the cost of living squeeze has intensified. But consumers do not yet …
31st May 2022
There are some question marks over quite how big the fiscal stimulus announced by the Chancellor yesterday proves to be. Much depends on whether the 25% levy on the profits of oil/gas producers lasts beyond the next year, which Sunak said would happen if …
27th May 2022
The extra financial support for households announced by the Chancellor today will help millions of households cope better with the cost of living crisis. But it won’t relieve all the pain and may mean the Bank of England has to pull the interest rate …
26th May 2022
If we are right in expecting inflationary pressure to stay strong even as the economy gets dangerously close to a recession, then the prices of gilts and UK equities will probably fall further over the next year. Our forecast that the Bank of England will …
Activity stalling, but inflationary pressures remain acute The flash PMI survey for May suggests that economic growth has slowed to a crawl and that the risk of a recession has not gone away. Even so, weakness in the economy doesn’t seem to be filtering …
24th May 2022
Changing economic winds may prevent the Chancellor from going big The economic wind that has recently been blowing the public finances to undershoot forecasts adds more pressure on the Chancellor to launch in the coming weeks a big package of measures to …
Another week, another set of target-busting inflation figures, with CPI inflation shooting up from 7.0% in March to a 40-year high of 9.0% in April. (See here .) In contrast, the rise in the euro-zone was smaller, with inflation ticking up from 7.4% in …
20th May 2022
Signs of resilience The unexpectedly strong rise in retail sales in April suggests the cost of living crisis hasn’t caused consumer spending to collapse and means the economy may have a little more momentum than we previously thought. It also supports our …
The recent collapse in consumer confidence to a near-record low has added to the probability that the UK experiences a recession this year. But households’ large stock of savings and the tightness in the labour market means that weak confidence may not …
19th May 2022
Worse to come as inflation may yet climb to 10% If the rise in CPI inflation from 7.0% to a 40-year high of 9.0% in April wasn’t bad enough, inflation will probably rise further to 10% in October and will then fall back to the 2% target only slowly. …
18th May 2022
We estimate that a rise in Bank Rate from 0.10% last November to a peak of 3.00% would mean that GDP is around 2.0% lower than if Bank Rate had stayed at 0.10%. That is a smaller drag than the Bank of England has incorporated into its forecasts. We do not …
17th May 2022
Still tightening even as economy slows Even though the economy contracted in March and may be on the brink of a recession, jobs growth strengthened, the unemployment rate fell to a 47-year low of 3.7% and wage growth accelerated. This supports our view …
The UK government’s plan to use domestic legislation to overwrite parts of the Brexit Northern Ireland Protocol risks creating another headwind for the economy and exacerbating price pressures at a time when CPI inflation is on the cusp of rising to a …
16th May 2022
Following the 0.1% m/m fall in GDP in March , we now think the economy is halfway towards a recession (two quarters of falling output in a row). (See here .) If GDP was flat in April, May and June, then it would be 0.1% lower in Q2 relative to Q1. We’ve …
13th May 2022
Risk of a recession has suddenly increased It now seems likely that GDP will contract in Q2. And with the full hit of the cost of living crisis yet to be felt, the chances of a recession have just risen. Even so, with price pressures still strengthening, …
12th May 2022
The weaker economic outlook triggered by the surge in CPI inflation to a 30-year high of 7.0% in March has yet to put a dent in businesses own expectations for their selling prices. The Bank of England’s Decision Maker Panel survey found that in April …
10th May 2022
As anticipated, this week’s Monetary Policy Report was the third in a row in which the Bank of England revised up its inflation forecast over the next two years and revised down its GDP forecast. But it was the Bank’s dramatic cuts to its GDP forecast and …
6th May 2022
The Monetary Policy Committee (MPC) struck a more dovish tone today while raising interest rates from 0.75% to a 13-year high of 1.00% and saying that it won’t make a decision until after August on whether to shrink its balance sheet quicker by selling …
5th May 2022
Consumer spending appears to be holding up well so far The decent increase in unsecured borrowing in March suggests that the plunge in consumer confidence and fall in real incomes have not caused consumer spending to collapse. This lends some support to …
4th May 2022
We understand why our new forecast that interest rates will be raised from 0.75% now to a peak to 3.00% next year has generated a lot of interest among clients. After all, it assumes that rates will peak higher than investors (2.50%) and other analysts …
29th April 2022
Our new forecasts that inflation will stay higher for longer and that the labour market will remain tight into 2023 (see here ) suggests that Bank Rate will rise to a peak of 3.00% next year rather than the peak of 2.50% currently priced into the markets. …
Rising price/wage expectations will prompt MPC to raise interest rates by 25bps MPC to announce its decision to sell some of its gilt holdings A tight labour market/more persistent price pressures may mean rates rise to 3.00% in 2023 The weakening …
28th April 2022
Our new forecast that interest rates will be raised from 0.75% now to a peak of 3.00% next year is more hawkish than the peak priced into the financial markets (2.50%) and the peak expected by the consensus of economists (2.00%). That’s because we think …
27th April 2022
Public finances won’t offer much help to the Chancellor in 2022/23 Total borrowing for the 2021/22 fiscal year overshot the Office for Budget Responsibility’s (OBR) March 2022 forecast by some £24bn, rounding out the third-worst year for the public …
26th April 2022
The news on the economy was distinctly downbeat this week with evidence of a consumer slowdown mounting (see here and here ) and the IMF predicting that the UK economy will grow by just 1.2% in 2023, the slowest among G7 countries. But that did not stop …
22nd April 2022
PMIs point to continued easing in economic growth The fall in the composite PMI in April suggests GDP growth has continued to slow as the cost of living crisis has intensified. But economic activity doesn’t appear to be collapsing. And, beneath the …
Gloomy signs of spending crunch The hefty fall in retail sales in March marks the second consecutive month of decline and adds to signs that the real wage squeeze is hitting consumer spending. With CPI inflation already at a 30-year high and set to keep …
If Chancellor Rishi Sunak was hoping that the economy would provide some respite from the political hot waters that he’s found himself in recently then data released over the past week will have come as another blow. First came figures released on Monday …
14th April 2022
High inflation means BoE will have to raise rates further than it expects The rise in CPI inflation in March from 6.2% to a new 30-year high of 7.0% was the sixth upside surprise in as many months and will pile more pressure on the Bank of England to …
13th April 2022
Some signs of a softening in labour demand The latest batch of data brought some signs of a softening in labour demand, but with the unemployment rate having fallen to pre-COVID levels, job vacancies at a record high and wage growth rising, the labour …
12th April 2022
Recovery slowing and at risk of stalling The news that the economy was hardly growing at all in February suggests the economy had a little less momentum in Q1 than we had previously thought, and increases the risk of a contraction in GDP in the coming …
11th April 2022
The government’s new energy strategy, revealed earlier this week, will do little to reduce the current upward pressure on inflation. The strategy commits to generating 95% of electricity from ‘low carbon’ sources by 2030, with additional targets to ramp …
8th April 2022
The squeeze on real household disposable incomes will hit harder from today. The first day of April brings with it a 54% leap in utilities prices as well as rises in council tax, water prices and many phone contract prices. Government benefits rise too, …
1st April 2022
Households using savings to offset the fall in real incomes The leap in inflation was behind the fall in real household disposable incomes in Q4 of last year. But it is encouraging that households appear willing to reduce their saving rate in order to …
31st March 2022
The war in Ukraine has contributed to a tightening in financial conditions that will contribute to weaker GDP growth for the rest of this year and next year. Admittedly, a lot of the initial plunges in UK equity prices and gilt yields have been reversed. …
29th March 2022
Households still happy to spend The leap in credit card borrowing in February and smaller increase in household savings could suggest that the cost of living crisis is already starting to bite. But we think it is more likely that households had the …
This week’s Spring Statement felt more like a piece of political theatre than an exercise in supporting the economy. Rishi Sunak’s determination to be remembered as a tax-cutting Chancellor meant that he made a great fanfare about cutting fuel duty for …
25th March 2022
Small fall a sign of things to come The small fall in retail sales in February probably had more to do with the shift back towards non-retail spending and the impact of Storm Eunice than it did the cost of living crisis. But, with further rises in …
War impact on activity small so far, but inflation risks intensify The surprisingly small fall in the composite activity PMI in March suggests that the war in Ukraine didn’t take that much steam out of the economy at the end of the first quarter. That …
24th March 2022
The Chancellor, Rishi Sunak, provided more support to the economy than we had expected over the next few years in today’s Spring Fiscal Statement, but he could have gone further in 2022/23. Instead, he chose to bank some extra cash so there’s scope for …
23rd March 2022
This checklist helps clients keep track of the key economic and public finances forecasts announced during the Chancellor’s Spring Statement speech at 12.30pm on Wednesday 23 rd March and to provide some instant context. We will send clients a Rapid …
High inflation means both the Chancellor and BoE have more work to do The further rise in CPI inflation from 5.5% in January to a new 30-year high of 6.2% in February adds to the pressure on the Chancellor to offset more of the cost of living crisis in …
Mixed bag for the Chancellor ahead of the Spring Statement Notwithstanding the deterioration in the public finances in February, large revisions to the back data mean that borrowing in 2021/22 is on track to undershoot the OBR’s October 2021 forecast by a …
22nd March 2022
The messages sent by the US Federal Reserve and the Bank of England at their policy meetings this week were very different. While the Fed said it intends to raise interest rates from 0.25-0.50% to 2.75-3.00% by the end of 2023 (see here ), after having …
18th March 2022
Today’s 25bps hike takes interest rates up to the pre-pandemic and post-Global Financial Crisis high of 0.75% and, although the Monetary Policy Committee (MPC) sounded a bit less hawkish than it did at its past meeting in February, it still signalled that …
17th March 2022
The Chancellor, Rishi Sunak, will use his Spring Statement on 23 rd March to soften the blow for households facing rising energy and food costs. However, any hopes that he will announce a big handout may be disappointed as he tries to strike a balance …
16th March 2022
Fears high inflation is fuelling wage growth The further fall in the unemployment rate to within a whisker of the pre-pandemic rate will only encourage the Bank of England to raise interest rates on Thursday, probably from 0.50% to 0.75%, despite the …
15th March 2022
The pressure on the Chancellor, Rishi Sunak, to go beyond the £9bn (0.4% of GDP) fiscal package announced in February and shelter households from even higher energy costs in his Spring Statement on 23 rd March has intensified this week. That’s because the …
11th March 2022
As good as it gets for this year The cost of living crisis and the influence of the war in Ukraine probably means that the 0.8% m/m leap in GDP in January is as good as it gets for this year. Meanwhile, two-thirds of the huge 20% m/m fall in UK exports to …
