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We fear that the forecasts for the economy published this week by the Office for Budget Responsibility (OBR) will prove to be far too optimistic. We’re not talking about its warning that the coronavirus lockdown will trigger a 35% drop in GDP. There’s no …
17th April 2020
It has become clearer to us that the economic legacy of the coronavirus crisis will last a number of years. Our new forecast is that the economy will be about 5% smaller (£100bn) at the end of 2022 than would have been the case if coronavirus didn’t …
14th April 2020
With the number of people fighting COVID-19 in hospital rising day by day, the recent talk of an “exit strategy” from the lockdown appears premature. Even when the restrictions are lifted, consumer and business caution, high unemployment and many …
9th April 2020
We won’t know until the future whether or not the Bank of England has launched helicopter money as it depends if the rise in the money supply is temporary or permanent. But more important is whether it leads to much higher inflation. The markets don’t …
The 0.1% m/m fall in GDP in February will be the last figure that looks anything like “normal” for a while as the coronavirus lockdown will mean that in March and April GDP will fall at a speed and magnitude that the UK economy has never endured before. …
The number of business insolvencies could reach the same level as in the Global Financial Crisis over the next few years, keeping the unemployment rate high and holding back the economic recovery. The number of business insolvencies will be a key …
8th April 2020
Brexit is clearly not a priority right now. But with negotiations shelved due to the coronavirus, it is becoming increasingly likely that the government agrees to extend the transition period beyond 31 st December 2020. This is now our baseline …
7th April 2020
More confirmation that social distancing is obliterating economic activity The incoming data continue to confirm that the UK is destined for the sharpest fall in economic output for over a century in Q2. And the collapse in consumer confidence to its …
6th April 2020
Despite policymakers’ best efforts, it is looking more likely that the unemployment rate and businesses insolvencies could rise as high as in the Global Financial Crisis. Policymakers aim high, but measures fall short The Treasury and the Bank of England …
3rd April 2020
Downward revisions confirm lockdown has led to a huge loss of activity The downward revisions to March’s PMIs confirm that the measures taken to slow the spread of the coronavirus have pushed the economy into a recession of unprecedented scale and depth. …
It’s become clearer that the economic costs of the lockdown to contain the coronavirus will be huge. The plunge in the activity PMIs in March provide some tentative support to our view that GDP could fall by something like 15% q/q in Q2. The 1,500,000 new …
2nd April 2020
Reports of a further leap in new claims for Universal Credit suggest that the government support designed to keep people employed isn’t working and that the unemployment rate could jump from 3.9% in January to about 5.5% in April. Our forecast that the …
1st April 2020
We doubt that the coming explosion in government borrowing or the accompanying rise in government debt will push up gilt yields. Low growth, low inflation, and low interest rates mean that they gilt yields will remain close to their all-time lows …
31st March 2020
Most of the high frequency indicators we track show how the coronavirus lockdown is significantly reducing activity. The exception is the activity of watching TV, which is surging. This too, of course, is a symptom of the plunge in normal economic …
Economy stagnating even before the coronavirus The confirmation that the economy stagnated in Q4 shows that it was very weak even before the spread of the coronavirus in the UK. We expect a 15% q/q fall in GDP in Q2 and things could easily be worse. Q4’s …
The collapse in economic activity, spike in unemployment and slump in oil prices look set to push inflation down from 1.7% now to around 0.5%, with the risk that inflation falls to, or below zero. Either way, if activity and oil prices recover in …
30th March 2020
Worst yet to come for confidence The relatively small fall in the European Commission’s Economic Sentiment Indicator (ESI) for the UK is mainly because the survey was done prior to the UK going into a full lockdown. A much sharper drop in confidence is …
While we still expect the economy to rebound strongly after the virus has been contained, the surge in Universal Credit benefit claims this week raises the risk that it won’t get back to “normal” as quickly as we had previously thought. Policymakers throw …
27th March 2020
This coronavirus recession isn’t anything like a “normal” one. The fall in output will be sudden and vast. The huge policy response means the recovery should be much quicker than normal too. But the scale of the economic dislocation and the risk that the …
This Update was originally sent to clients as a Rapid Response immediately after Rishi Sunak’s press conference on 26 th March. The government’s measures to support the self-employed during the coronavirus crisis will help prop up incomes and employment. …
26th March 2020
If the Bank of England is going to build on the unprecedented policy support it has unleashed in recent weeks to counteract the economic effects of the coronavirus, it won’t be because of concerns over how far inflation or GDP will fall. Instead, it would …
No signs of a stockpiling boost or a big plunge…yet The 0.3% m/m fall in retail sales volumes in February (consensus +0.2%) suggests that even prior to the disruption from the coronavirus, consumers were already starting to rein in spending. Admittedly, …
The coronavirus crisis means that the government’s budget deficit will soon explode to above the 10% of GDP peak seen in the financial crisis and debt could spiral from about 80% of GDP now to over 100%. However, if we are right in thinking that the …
25th March 2020
The UK’s current account deficit is the main reason why the pound has fallen by more than other currencies against the US dollar over the past fortnight. The same was true in the Global Financial Crisis, and the pound never really recovered. But the pound …
Inflation to drop to 1% in the third quarter The drop in CPI inflation from 1.8% in January to 1.7% in February is a small sign of things to come – we expect the effects of the coronavirus crisis to drag inflation below 1.0% in the months ahead. The …
The enormous fall in GDP that we have pencilled in for Q2 as a result of the economic effects of the coronavirus implies that the unemployment rate will spike over the next few months and that incomes will be hit hard. However, the short duration of the …
24th March 2020
PMI already at record low before government restrictions bite The first conventional data for March confirmed that the coronavirus was having a massive negative impact on activity even before the Government stepped up the severity of its measures to slow …
This Update was originally sent to clients as a Rapid Response immediately after Rishi Sunak’s press conference on 20 th March. The Chancellor’s announcement this afternoon means that the government’s coronavirus-fighting economic package is now worth …
20th March 2020
There is no doubt that the coronavirus health crisis has already led to an economic crisis and this week we saw the first real signs of severe disruption in the financial markets. Health crisis The spread of the coronavirus is at an earlier stage in the …
Big stimulus package from BoE has succeeded so far in easing some financial market stresses But with financial conditions still unusually tight, the Bank may need to do more The Bank may need to test out some new, extreme, tools The decisive action taken …
Deficit will soon explode After coming in at about 2% of GDP in 2019/20, the budget deficit will soon explode to close to the size seen in the great financial crisis. The government’s measures to combat the economic fallout of the coronavirus at the same …
The high frequency indicators we track show that the spread of the coronavirus is already having an impact on the economy. There is no doubt these activity indicators will deteriorate further as the government’s measures to contain the virus become …
The big package of measures announced by the Bank of England today in its second emergency meeting in just over a week is designed to ease the stress in the financial markets and to support the recovery once the full economic hit from the coronavirus has …
19th March 2020
The coronavirus has unleashed a huge sell-off in financial markets that has seen the FTSE 250 fall by 40% and investors even pull their money from traditionally safe assets like government bonds. While there are many casualties, the pound has been hit …
18th March 2020
This Update was originally sent to clients as a Rapid Response immediately after Rishi Sunak’s speech on 17th March. While the large package of measures aimed to counter the economic effects of the coronavirus unveiled by the government today probably …
17th March 2020
The Bank of England can’t prevent the economy from falling into recession. But like the Fed, we think it will soon throw everything in its policy arsenal at the coronavirus crisis to try to prevent the markets from seizing up and to reduce the risk of a …
We now think that the economic effects of the coronavirus will result in GDP falling by around 15% q/q in Q2, that the Bank of England will soon launch £150bn of quantitative easing, and that the government will need to act as a backstop for banks and …
The last hurrah for the labour market The strong rate of employment growth at the start of the year is a rare bit of good news for the economy at the minute. But this growth will give way to a plunge in employment in the coming months. Employment rose by …
This week’s shift in the UK government’s coronavirus strategy from the “contain” stage to the “delay” stage has not yet led to the stringent measures deployed in Europe, such as school closures and bans on mass gatherings, which would put a large dent in …
13th March 2020
While it is a given that GDP growth will slow sharply over the next few months as the economic consequences of the coronavirus are felt, some sectors will weather the storm better than others. We expect the recreation, transport and motor vehicles sectors …
12th March 2020
Economy struggling even before the coronavirus The stagnation in GDP in January shows that the economy was weak even before people started worrying about the coronavirus. And our more timely measures of activity, such as weekly cinema sales, suggest that …
11th March 2020
The Bank of England’s 50bps emergency interest rate cut, from 0.75% back to the record low of 0.25%, and other measures aimed to support loans to businesses announced this morning is the first salvo in a day of coordinated action designed to cushion the …
As central forecasts for GDP growth are less useful during times of high uncertainty, this Update illustrates some alternative scenarios of how the coronavirus could influence the UK economy based on the government and households using different measures …
10th March 2020
The fall in gilt yields into negative territory on Monday implies that investors think that the Bank of England will cut interest rates to emergency levels and keep them there for the foreseeable future. We expect a 25bps cut to 0.50% soon. But as the hit …
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 11 th March and to provide some instant context. We will send a Rapid Response and a Focus …
The Bank of England has made it clear that policy action to cushion the economy from the coronavirus is on its way, the only questions are what, how much and when. In the face of today’s meltdown in the financial markets, the Bank may be forced to act …
9th March 2020
With the number of coronavirus cases in the UK having reached 116 and rising, we now think that a change in consumer behaviour and working practices will weigh on economic activity this year. Consumer spending is particularly important in the UK, …
6th March 2020
The economy started the year on a strong note, but it is only a matter of time before it succumbs to the effects of the coronavirus. To reflect the weaker global backdrop and the likelihood that measures implemented to limit the spread of the virus will …
5th March 2020
Q1 was shaping up nicely until coronavirus got involved The small rise in the all-sector PMI in February suggests that Q1 was shaping up to be a good quarter for the economy. But we suspect the survey will take a turn for the worse in March as the …
4th March 2020
In a change to our previous forecast, we now think that the economic effects of the coronavirus will result in GDP growth slowing to just 0.7% this year and will soon prompt the Bank of England to cut interest rates from 0.75% to 0.50%. That said, we …
3rd March 2020
