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Stabilisation in employment may keep the MPC away from rate cuts The larger-than-expected rise in employment in October suggests the labour market has stabilised, so the Monetary Policy Committee will probably hold off cutting interest rates at Thursday’s …
17th December 2019
Weak Q4 confirmed but green shoots may soon emerge The weak flash PMIs for the UK are another piece of evidence that suggests growth flat-lined in Q4. And if there isn’t a pick-up in the surveys in the next few months, then the MPC may respond by cutting …
16th December 2019
While the election result has changed sentiment in the markets and Westminster, as far as the economy is concerned the most crucial decisions about the UK’s future trading relationship with Europe and the size of any fiscal stimulus are still to come. …
13th December 2019
Vlieghe might join Saunders and Haskel in voting for a cut But the election result and prospect of a Brexit deal may mean the majority is content to wait Chances of a rate cut arguably higher in January If the Monetary Policy Committee (MPC) wanted to cut …
While the majority secured by the Conservatives in the election clears the path to a Brexit deal being passed by 31 st January and fiscal policy being loosened in a Budget in February, the resulting boost to the economy will be restrained by the risk that …
This Update was originally sent to clients as a Rapid Response immediately after the general election exit poll was published at 10pm on 12 th December 2019. If the exit poll’s estimation that the Conservatives secured a majority of 86 seats in today’s …
12th December 2019
Our election preview contains detailed analysis of the potential impact of the election on the economy and markets. Here we focus on what to watch on Thursday night to get a sense of the result and its implications. When will we know who’s won? The first …
11th December 2019
As the markets have priced in a high chance of this Thursday’s election delivering a Conservative majority there is little immediate upside left for the pound or gilt yields, although equities might still get a boost. There is, however, lots of scope for …
10th December 2019
Economy not going anywhere in Q4 The stagnation in GDP in October is unlikely to influence many people’s vote in Thursday’s election, but it could prompt some more MPC members to vote for lower interest rates in the coming months. The 0.0% m/m outcome for …
In view of the wider interest, this Global Markets Update is made available to clients of the UK Markets service as well. A surprise win for Labour at Thursday’s election could be a major shock to UK equity markets. There are few recent examples of an …
6th December 2019
The public could give economists an early Christmas present at next Thursday’s election. Either a Conservative majority (most likely) or a Labour-led government (still plausible) would make what will happen with Brexit a bit clearer and allow us to switch …
While employment tends to lag changes in economic activity, the labour market figures will be crucial in leading the MPC’s decision about whether to cut interest rates or not in the coming months, even if there is a clear Conservative election victory and …
While a Conservative election win followed by a Brexit deal would boost the economy, the lingering uncertainty generated by Boris Johnson’s pledge not to extend the transition period beyond 2020 will limit the rise in GDP growth and will probably negate …
5th December 2019
The anticipation of next week’s election delivering a substantial majority for the Conservative Party and leading to a Brexit deal has already triggered a turning point in the financial markets, with the pound rising to a seven-month high of $1.31 and a …
PMIs suggest economy struggling to grow at all The softening in the all-sector PMI in November suggests that GDP growth has slowed sharply in Q4 from Q3’s 0.3% q/q rise and has perhaps even turned negative. But we think that the PMIs are overstating the …
4th December 2019
The latest polls suggest that the Conservatives are increasingly likely to win a big enough majority in the election on 12 th December to allow them to pass Boris Johnson’s Brexit deal, which would mean the UK leaves the EU on 31 st January and enters a …
29th November 2019
Economic sentiment shouldn’t pull the rug out from under the Conservatives In contrast to the flash PMI’s for November which pointed to GDP growth slowing further, the European Commission’s Economic Sentiment Indictor (ESI) points to a stabilisation. And …
28th November 2019
A victory for Labour in the general election on 12 th December would probably cause the pound to slide from $1.29/£ to around $1.20/£. But the prospect of a softer Brexit, or even no Brexit at all, would limit the downside posed by some of Labour’s …
22nd November 2019
The Johnson-Corbyn TV debate, the release of the Labour and Lib Dem manifestos, and a fake fact-checking twitter page all gave the impression that the election on 12 th December is getting close. The Conservative manifesto may be released on Sunday, …
PMIs chime a worrying tone for Q4 The first set of regular flash PMIs for the UK will only stoke fears that the economy is heading for a further slowdown at the end of the year. Indeed, even though we think that the PMIs are probably overstating the …
The Labour Party’s manifesto contains several measures which, if implemented, would have a significant negative effect on UK equites. A surprise Labour win could send UK equities tumbling, despite a softer Brexit. Labour’s manifesto is one of the most …
Brexit preparations force spending higher The worst October for the public finances for five years won’t prevent whoever wins the election embarking on a fiscal splurge. Borrowing appears to have been higher than expected due to Brexit preparations, and …
21st November 2019
Labour would probably borrow a lot more than the Conservatives if it won the election, but we doubt gilt yields would soar. Labour’s fiscal plans wouldn’t bring debt sustainability into question, inflation expectations are unlikely to leap and relatively …
20th November 2019
November’s “Black Friday” boost to retail sales volumes will actually show up in December’s retail sales figures this year. More importantly, consumers may not be in the mood to spend freely over the Christmas period. As a result, retailers may find just …
The lessons for the UK from the election of a Labour government in New Zealand in 2017 are that businesses and financial markets will probably put more weight on policies that could restrain economic growth than the prospect of much looser fiscal policy. …
18th November 2019
With employment falling and GDP contracting in September, the government will have been glad to close the door on Q3. But looking out of the window onto Q4, the view isn’t much better. It has (thankfully) been a relatively quiet week on the political and …
15th November 2019
Disappointing start to Q4 October’s fall in retail sales volumes was especially concerning as stores refrained from raising prices at all. This heightens the risk that consumer spending growth could slow in Q4 from Q3’s 0.4% q/q, adding further woe to the …
14th November 2019
As the markets have not fully priced in the Conservatives winning the general election on 12 th December and securing a Brexit deal, if that were to happen we suspect the pound would climb from $1.28 now to $1.35, 10-year gilt yields could rise from 0.76% …
13th November 2019
Easing inflation leaves door open to interest rate cuts October’s consumer price inflation figures will do nothing to affect the Bank’s view – expressed at its meeting earlier this month – that interest rates will most likely be raised eventually if there …
Resilient in the face of weak GDP growth After GDP growth disappointed expectations yesterday, the smaller than expected fall in employment in the three months to September was something of a relief. At the margin, the figures reduce the immediate need …
12th November 2019
If the Conservative Party wins an outright majority in the upcoming general election on 12 th December, as polls suggest is the most likely outcome, there is potentially significant upside for UK equities. Since the 2016 referendum, UK mid- and large-cap …
11th November 2019
Burst of growth in Q3 doesn’t change picture of economy in limbo While the burst of growth means that the economy avoided a recession in Q3, it’s pretty clear that underlying growth is soft and that the risks to our Q4 GDP forecast of 0.2% q/q are to the …
The policy debate has shifted this week to just how large a fiscal stimulus is in prospect and whether the Monetary Policy Committee (MPC) might soon cut interest rates. We warned this would happen. We were the only ones to predict that any MPC members …
8th November 2019
The Monetary Policy Committee’s (MPC) dovish shift at its November meeting leaves the Committee unsure in which direction the next change in interest rates will be. As well as softening its language on the chances of rate hikes if there were a Brexit …
7th November 2019
With the Conservatives and the Labour Party now competing on fiscal profligacy rather than fiscal prudence, it is unsurprising that the Chancellor Sajid Javid announced today a full rewrite of the fiscal rules. But the new rules still allow a big fiscal …
Although we estimate that the 0.2% q/q contraction in GDP in Q2 was followed by a 0.4% q/q rise in Q3, it is clear that the economy is spluttering rather than firing on all cylinders. We think that GDP will rise by just 0.2% q/q in Q4. Seeing as the …
6th November 2019
This Update clarifies the tweaks to our forecasts for the economy and the financial markets triggered by the delay to Brexit to 31 st January and the recent changes to our forecasts for the global financial markets. Although the numbers are slightly …
5th November 2019
PMIs recover, but from a very low level The recovery in the services PMI in October will allay fears that the largest sector of the economy is slipping into recession. Nonetheless, the survey suggests that the risks to our forecast that GDP growth will …
The confirmation that Brexit has been rescheduled from yesterday to the 31 st January cleared the way for MPs to agree to a general election on Thursday 12 th December that could resolve Brexit. With the Conservatives well ahead in the polls, a …
1st November 2019
Consistent with manufacturing recession While the manufacturing PMI recovered in October from September’s extremely weak level, it is still consistent with a recession in the manufacturing sector. The PMI reading of 49.6 (up from 48.3 in September) …
The economy may be on a path that would eventually prompt the MPC to cut rates… …but the chance of a Brexit deal in January will keep the toolbox in the closet for now Unless the headwinds of weak global growth and Brexit uncertainty fade, the next move …
31st October 2019
With England and South Africa battling for the right to lift the Webb Ellis Cup in the Rugby World Cup final this weekend, we’ve been pondering which of the two economies would come out on top in a head-to-head, while we think England will take the …
A general election on 12 th December may seal the fate of Brexit but could also have some other important implications. The economy and financial markets may either have to cope with a combination of a hardish Brexit and business friendly policies under …
29th October 2019
The weakness in business investment since the EU referendum has been concentrated in IT & machinery, transport and non-residential buildings so those areas may enjoy the biggest rebound if there is a Brexit deal, but they would also continue to suffer the …
This Update was originally sent to clients as a Rapid Response immediately after the vote in Parliament on whether to hold a general election. Although Parliament tonight voted against holding a general election, it seems likely that MPs will soon change …
28th October 2019
Although the pound has fallen back from its recent high of $1.30 on Monday to $1.28 now, you could say that it has been remarkably stable given that, technically, if nothing changes in the coming days there would be a no deal Brexit in just six days’ …
25th October 2019
The political benefits of Boris Johnson’s Brexit deal may also prove to be its economic downsides. If the deal is eventually passed in its current form there would effectively still be a chance of something like a no deal Brexit in December 2020. If that …
24th October 2019
This Update was originally sent to clients as a Rapid Response immediately after the votes in Parliament on 22 nd October on Boris Johnson’s Brexit deal. Tonight’s votes in Parliament on Boris Johnson’s Brexit deal suggest that Brexit will probably be …
22nd October 2019
If Boris Johnson’s Brexit deal is approved in Parliament soon, we expect the pound would rise from $1.29 now to about $1.35 and 10-year gilt yields would increase from 0.72% to around 0.90% by the end of the year. While a lot of good news is already baked …
Looser fiscal policy on the way, unless Brexit is delayed September’s better-than-expected public finances figures do not change this year’s overarching themes of higher spending and borrowing. Nonetheless, there is a high chance that the Chancellor will …
