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Government borrowing shows little sign of easing off Monthly borrowing in September was the third highest on record, only exceeded by that in April and May when the pandemic and the fiscal response were at their height. With the recovery stuttering and …
21st October 2020
Low inflation gives the green light to more QE With CPI inflation just 0.5% in September and new COVID-19 restrictions darkening the economic outlook again, it’s hard to think of reasons why the Bank of England won’t launch another £100bn or so of …
The government is removing some of its support to employment. The national furlough ends on the 31 st October and the new Job Support Scheme is less generous and narrower. As a result, the pace of the fall in employment will soon speed up. At its peak in …
20th October 2020
While we wouldn’t rule out negative interest rates being used a bit further down the line, over the next 6-12 months we think 10-year gilt yields will be kept close to 0.15% by the Bank of England expanding quantitative easing (QE) by a further £250bn by …
We published our new set of economic forecasts on Monday, in which we warned that the tightening in COVID-19 restrictions would mean that GDP might not rise at all in October, November and December. We also said that the unemployment rate would rise from …
16th October 2020
A “circuit-breaker” lockdown where most pubs and restaurants are closed across the country would throw the economic recovery into reverse and mean that, depending on the severity and length of the restrictions, it could be well into 2023 before GDP …
15th October 2020
More bad news to come The fallout in the labour market from the COVID-19 recession has been worse than previously thought. And with the latest COVID-19 restrictions threatening to stall the economic recovery, if not send it into reverse, the unemployment …
13th October 2020
The economic recovery from the COVID-19 recession was always going to slow at some point. But the 2.1% m/m rise in GDP in August was smaller than the 5.0% m/m gain we had anticipated and suggests that recovery is running out of steam sooner than we …
9th October 2020
Recovery already flattening off in August The disappointing 2.1% m/m rise in GDP (consensus forecast 4.6%) adds to the evidence that the initial rebound in economic activity is running out of steam. And with new restrictions being imposed to curb the …
Consumers appear to be much more miserable than the economic fundamentals would imply. But the prospect of a second wave of unemployment and the risk of future lockdowns are not captured well by the models. As such, consumer confidence is likely to stay …
5th October 2020
While UK-EU relations deteriorated on one front this week, with the EU sending the UK a letter to formally begin legal procedures over the UK’s plans to undermine parts of the Withdrawal Agreement, there appears to have been a more constructive mood in …
2nd October 2020
As the differences between a Brexit deal and a no deal are not as big as they once were, the economic costs of a no deal have diminished. The bigger risk is that relations between the UK and the EU deteriorate to such an extent that both sides start to …
1st October 2020
Government passing the pain to households and businesses The bulk of the pain of Q2’s slump in GDP had been borne by the government rather than households and businesses. But with the recovery already flattening off, fiscal support fading and the full …
30th September 2020
Housing market on fire, but consumers seem lukewarm While the resurgence in the housing market continued in August, consumer credit barely rose. And the darkening clouds on the economic horizon may tempt some households to start to rein in spending in the …
29th September 2020
In response to a marked rise in the number of virus cases over the past few weeks, Boris Johnson announced that people should work from home if they can, that bars and restaurants would have to close at 10pm and that the reopening of other parts of the …
25th September 2020
Fiscal support to fade in the autumn The government borrowed another huge sum of £35.9bn in August as it continued to absorb much of the cost of the COVID-19 crisis. But while the Chancellor announced some modest further support yesterday, the big picture …
The policy measures announced today by the Chancellor will go some way to cushioning the blow to the economic recovery from the new restrictions to contain COVID-19 and limiting the long-term hit to unemployment. But these actions won’t eliminate the hit …
24th September 2020
The new restrictions to contain COVID-19 won’t prevent some sectors from continuing to recover, but they will cause others to go backwards. And based on an assumption that restrictions are more likely to be tightened further than loosened, we think …
23rd September 2020
The concerns about the consequences for the economy from a second wave of COVID-19 and a no deal Brexit, which have reduced the FTSE 100 almost back to April’s level and weakened the pound from $1.35 to $1.27, seem justified. After all, the new guidance …
Recovery flattens out The drop in the composite IHS Markit/CIPS Flash PMI suggests that the recovery has already started to flatten out in September. And reinstating restrictions on business opening hours and encouraging people to work from home again …
A tightening in restrictions designed to quash the resurgence in new COVID-19 cases would set back the economic recovery. We’ll be in a better position to quantify the impact once the government announces its plan tomorrow. But if the government resorted …
21st September 2020
Investment holding back the recovery It seems that consumers have largely forgotten about the pandemic already. Retail sales are now 4.0% above their pre-pandemic level (see here ) and the mini-boom in the housing market will continue to support …
18th September 2020
Retail spending rises further above pre-pandemic levels The further rise in retail sales in August was particularly encouraging as we know non-retail spending picked up at the same time, suggesting that consumer spending has rebounded strongly. The 0.8% …
As the Bank of England already has a QE programme in place and financial markets have remained calm, it was no surprise that the MPC voted unanimously to keep policy unchanged in September. But we think that it will loosen policy further, most likely in …
17th September 2020
Inflation bottoms out The sharp drop in CPI inflation in August probably represents the low point for inflation. But a sustained rise to 2.0% seems unlikely within the next few years. The plunge in inflation from +1.0% in July to +0.2% in August …
16th September 2020
No fallout from unwinding of the furlough scheme…yet It’s encouraging that the start of the unwinding of the furlough scheme in August has not led to a surge in job losses. But we think it is only a matter of time before that happens and the unemployment …
15th September 2020
We don’t think that the recent underperformance of UK equities will continue. But we no longer expect them to make up the ground that they have lost to their peers since the virus hit. Since the plunge in equity prices in March, UK equities have …
14th September 2020
The recent rebound in housing transactions and jump in house prices will boost consumption over the coming months, but the boost will only be temporary. Once the stamp duty holiday expires at the end of March and the unemployment rate starts to rise, the …
A 6% fall in the pound from $1.35 to $1.28, questions over the legality of the government’s actions and condemnation from the EU are all sure signs that the summer is over, a Brexit deadline is looming and the possibility of the transition period ending …
11th September 2020
The last of the big rises The strong 6.6% m/m rise in GDP in July suggests that the record-breaking negative growth rate of GDP in Q2 will be followed by a record-breaking positive growth rate in Q3. However, July was probably the last of the big step ups …
The financial markets have woken up with a bang to the possibility that the Brexit transition period ends on 31 st December without a deal. That could set back the UK’s economic recovery from the coronavirus recession and prompt the pound to weaken from …
10th September 2020
Downside risks to the Bank of England’s forecasts are crystallising MPC will wait until the current QE program is ending before adding more stimulus QE still the tool of choice, negative rates possible further ahead The initial recovery has been …
Our Capital Economics BICS Indicator suggests that the rapid economic recovery has continued with some chunky gains in GDP in both July and August. (See Chart 1.) If so, then the economy may now be “only” 8% below its pre-crisis level and around 70% of …
8th September 2020
The economy’s impressive initial recovery from the coronavirus recession will soon fade. That was always going to happen naturally once most sectors had reopened. But the prospect of some tax rises in the Autumn Budget, the resurgence in Brexit …
7th September 2020
Indigestion from the success of the government’s “Eat Out to Help Out” scheme seems to have struck in Westminster. The scheme boosted the number of diners in restaurants by over 200% y/y on the last day of August and by more than 20% y/y over the month as …
4th September 2020
While the Bank of England might not follow the Fed and change its inflation remit, we doubt this will stop it from significantly loosening policy and from keeping it loose for a very long time. The Fed announced last week that it will now seek “to achieve …
3rd September 2020
The reopening of schools this week could give a boost to GDP of around 5% as output in the education sector returns to normal and parents who have had to provide childcare get back to work. The impact that school closures had on the economy was determined …
Households resume pre-virus borrowing habits July’s money and credit data confirm the resurgence in the housing market while recovering consumer credit suggests that households’ appetite for big ticket purchases is returning. The rise in mortgage …
1st September 2020
After the 8.7% m/m gain in GDP in June, another surge as the economy re-opened in July is already baked in the cake, perhaps of 7.5% m/m according to our CE BICS Indicator. (See here .) But while this rise sounds impressive, GDP would still be 11% below …
28th August 2020
Economic recovery already starting to fizzle out The small fall in the UK Economic Sentiment Indicator (ESI) in August suggests that the economic recovery might already be starting to fizzle out. What’s more, rising unemployment is likely to further …
The recovery in total consumer spending is almost certainly lagging well behind the surge in retail sales. And although the early signs of a recovery have been positive, a coming wave of unemployment will put a dampener on consumers’ willingness and …
27th August 2020
Despite the news that the latest round of UK-EU Brexit negotiations ended in deadlock last Friday, sterling has remained remarkably stable. This suggests that while there may be some small upside for sterling if a slim trade deal is agreed by 31 st …
With the so-called “easy” part of the economic recovery probably coming to an end, the next leg is likely to be slower, particularly if like overseas, the UK suffers a renewed surge in virus cases and more localised lockdowns. While the high frequency …
26th August 2020
The recent lull in business insolvencies will almost certainly be followed by a wave of businesses going bust as government support is withdrawn. This will contribute to a surge in unemployment over the next year and is one reason why we expect the strong …
25th August 2020
The surprise rise in CPI inflation, from +0.6% in June to +1.0% in July, highlights that the effects of the pandemic will not only be deflationary. While some of the increase was due to recovering oil and fuel prices, core inflation also rose. That was …
21st August 2020
Further signs recovery continued at a strong pace in August The sharp rise in the composite IHS Markit/CIPS Flash PMI in August provided further evidence that the recovery continued at a strong pace in Q3. Even so, we expect rising unemployment to put a …
Rise in debt ratio beyond 100% unlikely to panic the Chancellor July saw the fourth biggest monthly deficit in history behind only the first three months of this fiscal year. A massive increase in debt to over £2 trillion for the first time ever and above …
Retail spending rises above pre-pandemic levels Retail sales rose above their pre-pandemic levels in July as non-essential shops were allowed to open for the whole month. But the sector has benefited disproportionately from online spending and a switch …
