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In light of the accelerating spread of the coronavirus – and the economic disruption that is likely to follow – we are pulling down our GDP growth forecasts for Q1 and Q2 of this year. Growth is likely to rebound over the second half of the year, but most …
2nd March 2020
The 11% fall in UK equity prices this week shows that the situation is changing rapidly and that the financial markets appear to be pricing in the coronavirus triggering a marked weakening in the global and UK economies. At the same time, the markets have …
28th February 2020
The failure of the Chinese economy to recover promptly from the measures put in place to contain the coronavirus means that world demand growth will be softer than we had anticipated this year, but probably a bit stronger next year. As a result, we have …
27th February 2020
Confidence continues to grow but coronavirus may stop the party The European Commission’s Economic Sentiment Indicator (ESI) for the UK concurs with the message from the flash PMIs last week that the UK’s economic recovery continued in February. But …
While we are not convinced that capacity in the construction sector will be an immediate restraint on a big public investment splurge, the inner workings of the government could lessen the amount of money spent. So although a big fiscal stimulus is still …
25th February 2020
We think that the construction sector has the capacity to deliver an increase in public sector investment of around £50bn over the next five years if it is phased in gradually. Unless capacity increases significantly, the government’s manifesto plan to …
24th February 2020
The first official data for January piled more evidence onto our view that the economy will rebound in Q1 2020 after hitting a nadir in Q4 2019. But the growing impact of coronavirus on China’s economy and the weakness in the euro-zone threaten to stifle …
21st February 2020
Sustained strength of PMIs confirms economy has turned a corner The continued strength of the PMIs in February proves that the surge in January wasn’t a flash in the pan and gives us confidence in our view that economic growth will pick up in the first …
Households reopen their wallets January’s retail sales figures showed that December’s election result gave consumers the confidence to reopen their wallets. The more recent flooding and effects of the coronavirus may hinder sales in February and March. …
20th February 2020
Reversing the recent fall The rise in CPI inflation for the first time in six months in January was in line with the Bank of England’s expectations, so this is unlikely to move the dial on the outlook for interest rates. The jump in CPI inflation from …
19th February 2020
When faced with the choice of deciding whether to impose higher import tariffs on goods (exposing consumers to higher inflation) or lower ones (exposing firms to greater competition), the government’s latest tariff proposals suggest it has plumped for the …
18th February 2020
Solid employment growth, but wage growth slowing The larger-than-expected rise in employment in December suggests that the labour market joined the rest of the economy in turning a corner at the end of last year. However, pay growth is softening, which …
While the weakening in the global economy has reignited a downside risk to the UK economy, at the moment we don’t think it will derail the recovery in domestic activity that appears to be in train. Around the turn of the year both we and the MPC took …
17th February 2020
The resignation of Sajid Javid as Chancellor on Thursday and the promotion of Rishi Sunak raises the chances that a relaxation of the fiscal rules allows government policy to boost the economy by more than we expect over the next few years. (See here .) …
14th February 2020
We had already expected something big on fiscal policy in the Budget. But the change in Chancellor increases the chances that new, less restrictive fiscal rules are announced, and that government policy boosts the economy by more over the next few years …
This Update was originally sent to clients as a Rapid Response immediately after the announcement that Sajid Javid was being replaced as Chancellor by Rishi Sunak at 12pm on 13 th February 2020. The unexpected resignation of Sajid Javid as Chancellor and …
13th February 2020
We think the financial markets will be caught out this year by a decent acceleration in the quarterly rate of GDP growth preventing interest rates from being cut below 0.75%. And if we are right to assume that the UK and the EU will reach a fudge or …
12th February 2020
Stagnation in Q4, but Q1 will be better While the first estimate of Q4 GDP showed that the economy stagnated at the end of last year, this is old news and less important than the timelier data that suggests the economy has since turned a corner. The GDP …
11th February 2020
This week brought the clearest sign yet that the economy has turned a corner, with January’s all-sector activity PMI consistent with a 0.3% q/q expansion in GDP in Q1, up from a probable 0.1% decline in Q4. (See here .) Admittedly, with the moves in the …
7th February 2020
Signs that the economy has turned a corner support our view that interest rates won’t be cut from 0.75% this year. After all, the activity PMIs are no longer in the territory where rates have been cut by 25 basis points before. (See Chart 1.) And they …
6th February 2020
It’s possible that consumer spending stagnated or even fell outright in Q4. But this is not too worrying as stronger growth in incomes, a fall in uncertainty and a rise in confidence should lead to a rebound in consumer spending this year. Consumer …
5th February 2020
Survey reaffirms post-election rebound January’s all-sector PMI provides the clearest sign yet that the economy has turned a corner and supports our view that the next move in interest rates may actually be up, albeit not until 2021. The upward revision …
Much depends on if and when the outbreak of coronavirus in China is brought under control. But as it stands at present, the effects on the UK economy have probably been negligible. Our China Economics service is the place to look for analysis of the …
3rd February 2020
Our interest rate call clears the first hurdle While some may raise a glass to the UK leaving the EU tonight, we will be toasting our call that interest rates would not be cut from 0.75%. (See here .) But our view that rates won’t be cut at all this year …
31st January 2020
Even when the UK leaves the EU tonight, the shape of its future relationship with the EU is still very uncertain. We suspect it will eventually have a more distant “Canada, plus, plus” type relationship with the EU. While that will probably have a …
The MPC kept interest rates on hold at 0.75% today but left the door open to a rate cut in the coming months. Nonetheless, with the economy turning a corner and a big fiscal stimulus approaching, we suspect the next move in interest rates will be up not …
30th January 2020
Further signs the economy has turned a corner The European Commission’s Economic Sentiment Indicator (ESI) confirmed the message from the flash PMIs last week that sentiment in the services sector improved markedly after the election, but that the …
There’s been a few U-turns this week with the most striking happening in the markets expectations for interest rates. In early January, the markets were pricing in just a 5% chance of interest rates being cut from 0.75% to 0.50% at next Thursday’s …
24th January 2020
January’s decision whether to cut rates is very close We think that the MPC will keep rates on hold as the economy appears to have turned a corner We expect the next move in interest rates to be up rather than down, albeit not until 2021 January’s …
Turnaround in the economy will probably prevent a rate cut The large rebound in January’s flash activity PMIs will probably be enough to prevent the Monetary Policy Committee from cutting interest rates at next Thursday’s meeting. After all, it’s the …
Less chance of a rate cut, but looser fiscal policy still on the way The rebound in the main balances of the CBI Industrial Trends Survey in January offers further evidence that sentiment has taken an upward turn after the general election. This should …
22nd January 2020
Solid employment may nudge the MPC away from rate cuts The larger-than-expected rise in employment in November suggests the labour market has turned a corner after the weakness in Q3. That could help to convince the Monetary Policy Committee to hold off …
21st January 2020
A flurry of weak data this week has sent money markets into a tailspin. But we suspect that the MPC will just about look past the Brexit and election related distortions and will probably hold off cutting interest rates. At the start of the year the …
17th January 2020
Shoppers shun Christmas spending December’s outright fall in retail sales, despite a boost from the lateness of Black Friday, does not bode well for GDP growth in December and could nudge the MPC yet closer still to cutting rates at the end of the month. …
The Monetary Policy Committee’s decision on whether to cut rates in January rests on a knife edge and could go either way. The MPC must weigh up the weakness of the economy and low inflation in Q4 with the prospect that the election result, a Brexit …
16th January 2020
We have argued for some time that a near-term interest rate cut is a strong possibility. The market has now come around to this view. While the decision is a toss-up, at least until we see the next batch of data, our hunch remains that interest rates will …
15th January 2020
Fall in inflation pushes the MPC closer to a rate cut December’s consumer price figures showed that after a brief pause in November, inflation is back on a downward trend. This is likely to push the Monetary Policy Committee even closer towards a rate …
GDP data make rate cut a close call The sharp decline in GDP in November is partly due to some activity being brought forward before the 31 st October Brexit deadline. Nonetheless it leaves the economy on course to stagnate or contract by 0.1% q/q in Q4 …
13th January 2020
There is some early evidence that a “Boris bounce” after the election victory might be in progress, but the size and duration of any upswing will depend on how well the next stage of the Brexit negotiations go. December’s final IHS Markit/CIPS services …
10th January 2020
PMIs suggest post-election bounce is in the works Clearly Q4 was very weak, but the decisive result of the General Election appears to have given the services PMI a bit of a boost. That jump in confidence may start to come through in other data in Q1, …
6th January 2020
The turn of the decade has not caused the main headwind to the economy to blow over. The passage of the Withdrawal Agreement Bill through Parliament means that Brexit will officially happen on the 31 st January when the UK will enter a transition period …
3rd January 2020
This Update was originally sent to clients as a Rapid Response immediately after the vote in Parliament on 20 th December on Boris Johnson’s Brexit deal. The ease at which Johnson’s Brexit divorce bill passed through Parliament today illustrates the power …
20th December 2019
If the markets (and ourselves!) had any thoughts of winding down in the run-up to Christmas they didn’t last long as there were important enough events this week for the pound to have its worst week of the year. The fall from $1.35 to $1.30 was not an …
The confirmation that Andrew Bailey will take over from Mark Carney as Governor of the Bank of England on 16 th March 2020 doesn’t change the outlook for monetary policy. But Bailey will face many challenges during his eight-year term, such as navigating …
GDP revised up in Q3 but economy still lacking momentum Christmas has come early with the ONS revising up GDP growth in Q3 from 0.3% to 0.4% in its annual data deluge before the festive break. But the festive cheer will probably be short-lived seeing as …
Whatever the Brexit drama delivers in 2020, it seems that uncertainty will continue to hold back GDP growth and keep a lid on the pound, interest rates and gilt yields. But looser fiscal policy should generate at least some improvement in GDP growth and …
19th December 2019
The tone of December’s Monetary Policy Committee (MPC) statement and minutes was barely changed from November, indicating that the MPC is content to sit on its hands for the time being. As a result, we remain comfortable with our view that interest rates …
Not as bad as they look At face value, November’s further drop in retail sales volumes is pretty concerning. But the picture is clouded by the late timing of Black Friday this year, which probably means November’s figures look worse than they really are …
Steady inflation may persuade the MPC to remain on hold on Thursday November’s inflation figures will probably mean that the Monetary Policy Committee (MPC) will be content to sit on its hands at its meeting tomorrow. But unless the tone of the economic …
18th December 2019
The post-election jump in UK equities could just be the start of a sustained rally. Concerns Brexit and higher taxes under a Labour government mean that UK equity indices have underperformed over the last few years. (See Chart 1.) However, the removal of …
17th December 2019
