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The upward revision to GDP in the second half of 2020 means the economy does not have quite as far to recover from the COVID-19 crisis. But it doesn’t change the big picture that GDP will probably get back to its pre-crisis level by early 2022. (See here …
1st April 2021
We’ve assumed households just go back to saving the same share of their income as they did before the crisis. That is enough to drive a rapid economic recovery. The upside risk is if households go further and spend some of their stock of savings. Indeed, …
31st March 2021
High saving rate paves the way for rapid rebound in 2021 The upward revision to GDP in the second half of 2020 means the economy does not have quite as far to recover from the COVID-19 crisis. And Q4’s high saving rate leaves plenty of scope for a rapid …
Households still saving, small businesses still borrowing The COVID-19 lockdown pattern of households paying back credit and investing in property but small businesses loading up on debt continued in February. We doubt much changed in March, but this …
29th March 2021
Despite the good news on economic activity, there have been few signs that this is igniting inflation just yet. So while we think the rally in 10-year gilt yields has further to go, we doubt yields will rise far. While the risk of an interruption to the …
26th March 2021
Third COVID-19 lockdown capping the extent of the rebound The fairly modest rise in retail sales volumes in February affirmed that the third COVID-19 lockdown has been tough for retailers, keeping sales suppressed following the plunge in January. But that …
The jump in 10-year gilt yields from 0.29% at the end of January to 0.76% now has been driven by the markets pricing in a rise in inflation after the pandemic that they think will eventually prompt the Bank of England to raise interest rates sharply. With …
24th March 2021
PMIs rise as some businesses prepare to reopen The rise in the IHS Markit/CIPS composite activity PMI in March suggests that the economy has started to pick up. And once the COVID-19 shackles start to be released next month, activity will probably rebound …
Drag from lockdown won’t last The drag on CPI inflation in February from the COVID-19 lockdown will delay the rebound in inflation to 2.0% and perhaps prompt the markets to reconsider their view that interest rates will rise next year. The fall in CPI …
Our forecast that the Bank of England will keep interest rates at +0.10% for a few more years and that, as a result, inflation will rise above the 2% target for a prolonged period is consistent with a further steepening in the gilt yield curve. As a …
23rd March 2021
Continuing to hold up well The drop in the unemployment rate from 5.1% in December to 5.0% in January highlights once again the extent to which the government’s job furlough scheme has protected jobs during the pandemic. We still expect the unemployment …
At first glance the further rise in 10-year gilt yields to a 15-month high of 0.82% this week seems odd when on Thursday the Bank of England’s Monetary Policy Committee (MPC) showed no signs of moving closer to raising interest rates. Admittedly, the MPC …
19th March 2021
Borrowing set to end the financial year on the up February’s public finances figures showed that borrowing may come in a little below the OBR’s 2020/21 forecast of £355bn. But if we are right in thinking the economic recovery will be faster and fuller …
The Monetary Policy Committee (MPC) did not follow in the ECB’s footsteps by stepping up the pace of its QE purchases. Instead, it echoed the message of the Fed by emphasising that rate hikes are still a long way away. This suggests that rates won’t rise …
18th March 2021
Extensions to many emergency support measures in the Budget, combined with the lockdown easing roadmap, leaves us with a clearer steer on the impact of the eventual withdrawal of government support. As the economy follows the route out of lockdown, it …
16th March 2021
Brexit was not the only reason why exports and imports in January were so weak. COVID-19 and statistical breaks are also to blame. And it appears that a good chunk of these effects faded in February. The 18.3% m/m and 22.8% m/m respective falls in exports …
12th March 2021
BoE to hold firm At its meeting on Thursday the European Central Bank (ECB) struck a decidedly dovish tone by announcing that it will step up its bond purchases to “prevent a tightening in financial conditions”. (See here .) After all, yields on Italian …
January probably the low point for the year The good news is that the 2.9% m/m fall in GDP during January’s COVID-19 lockdown will probably be the low point for the year. The bad news is that while the plunges in exports and imports weren’t entirely due …
MPC won’t respond to higher gilt yields by stepping up the pace of its QE purchases But it will reiterate its guidance that rates will remain unchanged for a long time The change to the MPC’s remit may alter the composition of bond purchases, but not the …
11th March 2021
In last week’s Budget speech, the Chancellor referred to the lower “underlying” measure of government net debt rather than the higher “headline” measure. You’d be forgiven for thinking he did that just to put the spotlight on the lower measure. But the …
10th March 2021
The rapid rollout of COVID-19 vaccines, the reopening of schools and the staggered reopening of other sectors from mid-April should mean that the probable fall in GDP in January proves to be the low point of the year. The extension of the furlough scheme …
In this week’s Budget, the Chancellor, Rishi Sunak, appears to have pulled off the feat of solving some of the fiscal challenges without significantly risking the economic recovery. (See here .) His decision to wait until October before turning off the …
5th March 2021
While most governments are focussed squarely on maintaining or increasing fiscal support for their economies, in today’s Budget the Chancellor, Rishi Sunak, adopted a different two-staged plan for the UK – spend big for the next two years and tax big for …
3rd March 2021
This checklist helps clients keep track of the key economic and public finances forecasts announced during the Chancellor’s Budget speech at 12.30pm on Wednesday 3 rd March and to provide some instant context. We will send a Rapid Response and a Focus …
1st March 2021
Households continued to repay consumer credit, small businesses still borrowing The COVID-19 lockdown pattern of households paying back credit and investing in property but small businesses loading up on debt was repeated in January. And we expect a …
The roadmap out of the current COVID-19 lockdown announced by the Prime Minister on Monday was similar to the assumptions we had already built into our economic forecasts. As such, it didn’t reroute our forecast that the recovery will be faster and fuller …
26th February 2021
The surge in average earnings growth to a ten-year high is not what it seems as it’s partly due to large numbers of lower-paid workers losing their jobs. As such, the upward pressure on inflation from earnings growth is much smaller than implied by the …
25th February 2021
The pound has performed better than all other G10 currencies so far in 2021 (see Chart 1), rising from $1.36 at the start of January to almost a three-year high of $1.41 now. We expect the strength of sterling against the US dollar to continue and have …
24th February 2021
Earnings growth not as strong as it looks The rise in the unemployment rate in December is another step up on the climb towards the 6.5% peak we expect by the end of the year. But if the government follows the roadmap that it laid out on Monday and …
23rd February 2021
We think that the government’s roadmap for easing England’s current COVID-19 lockdown will direct the economy back to its pre-pandemic size by Q1 2022. With the Chancellor and the Bank of England unlikely to knock the economy off course with tighter …
22nd February 2021
The 8.2% m/m fall in retail sales confirmed that January’s lockdown hit retailers much harder than November’s lockdown, when sales fell by “only” 4.0% m/m. But it still wasn’t anywhere near as large as the 18.0% m/m drop in the first lockdown in April …
19th February 2021
GDP unlikely to bounce back much from January’s lockdown decline The rise in the IHS Markit/CIPS composite activity PMI in February suggests that the economy didn’t deteriorate further after the probable fall in GDP in January triggered by the current …
Lockdown adds to retailers’ January blues The sharp fall in retail sales in January suggests that the third COVID-19 lockdown hit the economy harder than the second lockdown in November. Retailers may have to endure a few more months of depressed sales, …
Third lockdown leads to highest January borrowing figure on record January’s poor borrowing figures are likely to set the tone for the next few months as the third COVID-19 lockdown keeps many businesses closed. But the Chancellor should resist the urge …
Brace for a jump to 2% in April The rise in CPI inflation from +0.6% in December to +0.7% in January (consensus forecast +0.6%) was trivial given that leaps to around +2.0% in April and to around +2.5% by the end of the year appear to be baked in the …
17th February 2021
UK assets are well placed to shake off their underperformance since the 2016 Brexit vote by outperforming global assets over the next couple of years. All risky assets will continue to be buoyed by the combination of a rapid global economic recovery from …
15th February 2021
The possibility that international travel restrictions could remain in place this summer implies that the rapid vaccine rollout won’t be enough to ensure a swift return to normality for the hard-hit tourism sector. But this is unlikely to put a huge dent …
12th February 2021
Avoiding a technical double-dip recession The media headlines have focused on the record-breaking 9.9% decline in annual GDP in 2020, but t he rise in GDP in Q4, despite the COVID-19 lockdown in November and restrictions in December, is further evidence …
There are fears that, by making the government’s debt servicing costs more vulnerable to short-term rises in interest rates, quantitative easing (QE) is storing up trouble for when Bank Rate rises. However, right from the onset of the scheme, it was clear …
10th February 2021
Even though we don’t expect there to be much, if any, long-term economic scarring from the COVID-19 crisis, a surge in the number of businesses going insolvent, a jump in the long-term unemployment rate or a sustained sharp drop in the number of …
9th February 2021
A fortnight ago we highlighted two downside risks to our forecasts that the economy would enjoy a quick and complete recovery from the COVID-19 crisis. (See here .) But the past week has highlighted two upsides, which also caught the attention of the …
5th February 2021
Our forecasts that the Bank of England would not be able to use negative interest until the middle of the year and wouldn’t be willing to speed up the pace of its quantitative easing (QE) proved to be spot on today. And the more optimistic feel of the …
4th February 2021
After having been boosted by stockbuilding ahead of the end of the Brexit transition period on 31 st December, exports and imports were always going to fall in January. But the added drags of COVID-19, the new Brexit customs procedures and the surge in …
3rd February 2021
Easing in the rush for cash The easing in the COVID-19 restrictions meant that businesses did not rush as fast to take on more debt in December. And with households investing in property and strengthening their balance sheets, there is scope for household …
1st February 2021
The labour market has been remarkably strong since the onset of the pandemic. The unemployment rate has only risen from 4.0% in February to 5.0% in November and the 3.6% 3myy rise in earnings in November means that wages were rising at their fastest …
29th January 2021
Bank to emphasise it is willing to provide more support and has the tools to do so But there is a lot of QE already in the pipeline and we doubt it’s ready to use negative rates Our relatively optimistic economic forecasts suggest it won’t need to either …
28th January 2021
10-year gilt yields haven’t been significantly dragged higher by 10-year US Treasury yields because, unlike their US counterparts, break-even inflation rates in the UK have not been boosted by expectations of a big fiscal stimulus, a rise in inflation and …
27th January 2021
Unemployment to continue its slow climb The rise in the unemployment rate in November is another step up on the climb towards the 6.5% peak we expect by the end of the year. But with the rollout of vaccines going well, the jobless rate may be back at its …
26th January 2021
Two developments this week threaten the view we laid out in our recent UK Economic Outlook that the economy will enjoy a quick and complete recovery from the COVID-19 crisis. (See here .) The first are the rumours that the Chancellor is planning to raise …
22nd January 2021
