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This Update analyses the key Brexit events in Parliament this week and highlights at what point we would be able to conclude that a Brexit deal is either done or dead. As such, the next week or so will be pivotal in determining whether the pound takes …
21st October 2019
This Update was originally sent to clients as a Rapid Response immediately after the vote on 19 th October on Boris Johnson’s Brexit deal. The decision by Parliament to essentially postpone a meaningful vote on Boris Johnson’s Brexit deal until after a …
19th October 2019
Last week, we said that there were two big obstacles in the pathway to a Brexit deal. With the UK and the EU having come to an agreement, one hurdle has been overcome. (See here .) The second, whether Parliament passes that agreement, will be clear enough …
18th October 2019
This Update was originally sent to clients as a Rapid Response immediately after the announcement on 17 th October that the UK and EU had agreed a Brexit deal. If the Brexit deal agreed by the EU and UK earlier today passes through Parliament, then there …
17th October 2019
Disappointing end to Q3 September’s retail sales figures were perhaps a bit of a relief given the intense Brexit uncertainty, but were hardly a picture of strength. However, if a Brexit deal is indeed agreed soon, household spending growth should regain …
If a Brexit deal is signed and ratified then sterling could rise further over the next few weeks or months, from $1.28 to $1.35 (€1.17). If interest rates were then to rise, sterling could hit $1.40 (€1.22) in 2021. At the end of July, when the chances of …
16th October 2019
Inflation surprisingly subdued in September Unchanged CPI inflation of 1.7% in September was softer than either we or the consensus (1.8%) expected which might delay interest rate hikes following a Brexit deal and increase the chances of rate cuts if …
A Brexit deal is still unlikely, but it would remove much of the uncertainty that has caused firms to hold off investment projects and consumers to rein in their spending, and would therefore result in GDP growth, interest rates, the pound and bond yields …
15th October 2019
Deeper cracks appearing in the labour market The drop in employment and tick down in wage growth in August is further evidence that deeper fissures are starting to appear in the labour market. However, the unemployment rate is still low and wage growth …
Still significant obstacles on the pathway to a deal After more than three years since the Brexit vote, it only took a two-hour chat between Boris Johnson and his Irish counterpart, Leo Varadkar, on Thursday to find a “pathway to a possible deal”! It’s …
11th October 2019
Recession fears banished, for the time being GDP fell on the month in August, but thanks to solid increases in May, June and July any remaining concerns that the economy fell into recession in Q3 have been well and truly banished. GDP fell by 0.1% m/m in …
10th October 2019
The government’s latest no deal tariff plans released yesterday provide us with some reassurance that although there will be some hit to the economy from higher tariffs it won’t be as big as most feared. Although there’s little the UK can do to prevent …
9th October 2019
In a change to our previous forecast, we now think there’s a fair chance that the Bank of England will cut interest rates if Brexit is delayed. That means interest rate cuts now feature in two of our three Brexit scenarios and would only be avoided if …
8th October 2019
Boris Johnson unveiled his “two borders, four years” proposal for a Brexit deal this week. The first border, comes from Northern Ireland aligning with some EU regulations after the UK has left the EU. This would create a border in the Irish Sea between …
4th October 2019
When put on a like-for-like basis, the Bank of England’s assumptions for how weak the economy would be in the 12 months after a no deal Brexit are not that different to our own. And both we and the Bank think that after a no deal economic growth would …
3rd October 2019
Losing momentum The drop in the IHS/Markit services PMI to a six-month low of 49.5 in September means that all three sector PMIs are now below the 50-mark which theoretically separates expansion from contraction, reigniting concerns that the economy is in …
Manufacturing PMI still pointing to drop in output Despite the rise in the manufacturing PMI in September, it remains at a low level and suggests the industrial sector contracted again in Q3. However, we still doubt that manufacturing will pull the …
1st October 2019
Households are healthy while the government lends a hand The revised GDP figures suggest the response to Brexit uncertainty since the referendum has been larger than previously thought. While headline GDP growth was little changed in recent years, …
30th September 2019
Despite the headwinds from the global economic slowdown and the political chaos around Brexit, there are still good reasons to think that GDP grew in Q3. However, it is clear that the performance of the UK economy will remain below-par until Brexit is …
27th September 2019
Consumers cautiously more confident September’s small rise in consumer confidence probably reflects the falling chances of a no deal Brexit rather than an improvement in the underlying economy. And it still leaves confidence at a pretty low level. That …
This Update was originally sent to clients as a Rapid Response immediately after the ruling by the Supreme Court on the legality of the Prime Minister’s decision to suspend Parliament until 14 th October. The ruling by the Supreme Court that the Prime …
24th September 2019
Student loans and spending pledges leave the fiscal target dead in the water High government spending in the early months of 2019/20 and the change to how student loans are counted in August’s public finances data, combined with the spending increases …
Equity markets have recovered much of their losses in recent weeks and, after hitting multi-year lows at the start of September, sterling and bond yields have also rebounded. (See Chart 1.) This is partly due to signs of a temporary détente in the …
23rd September 2019
The UK has significant financial ties to Hong Kong, and the recession and correction in house prices we are forecasting there will put the territory’s financial sector under pressure. However, only a couple of UK banks are vulnerable. And as they appear …
In recent years the economy has been moving towards full capacity, but at this week’s meeting the Monetary Policy Committee (MPC) judged that it has changed direction and slack is now opening up. Whether that continues, and whether the Committee …
20th September 2019
The decision to reform the RPI measure of inflation at some point between 2025 and 2030 could reduce RPI inflation by a little under 1ppt a year. That could give the Government a windfall of about £3.2bn per annum at the expense of bondholders and …
Given the drop in GDP in Q2, the fall in core inflation to an almost 3-year low in August and the ongoing Brexit drama, there was never much chance that the MPC would raise interest rates from 0.75% today. And even though the tone of the minutes was …
19th September 2019
Sales solid despite fading online boost Following two consecutive monthly gains, a fall in sales in August was always likely. In the event, sales fell by 0.2% m/m (consensus 0.0%, Capital Economics -0.5%) which dragged annual sales growth to an three …
Inflation defies rising pay It is possible to put a lot of the fall in inflation in August down to clothing and computer game prices, which are volatile. But there’s no denying that overall inflation is strikingly weak given high wage growth. The fall in …
18th September 2019
The implementation of a change to how student loans are classified in the public finances, on top of a jump in government spending so far this year and the 2019 Spending Round, means the Government’s fiscal target is dead in the water. But this shouldn’t …
16th September 2019
With the ECB loosening monetary policy this week, the Fed expected to cut interest rates for the second time in two months next week and the growing political chaos at home, you’d be forgiven for thinking that the Bank of England might be poised to cut …
13th September 2019
MPC may be a bit less concerned about a no deal Brexit… …but will still hold off on raising rates It seems almost certain that the MPC will keep interest rates at 0.75% at its next meeting on Thursday 19 th September. The minutes may be slightly more …
12th September 2019
The impact of the trade war between the US and China on the UK economy has been small, even allowing for the indirect effects on investment and the financial markets. Admittedly, trade tensions will probably intensify further from here. Even so, the …
11th September 2019
When the Brexit process comes to a head in October the economy could shift onto a new trajectory. This Update sets out the key events that could affect which of our forecasts the economy follows. The first thing to point out is that there won’t be an …
10th September 2019
Losing some shine July’s figures showed that the labour market has remained remarkably resilient despite the underlying weakness of economic growth, but some small cracks are starting to appear. The most striking aspect of the latest figures was the rise …
Political chaos, yes. Economic chaos, no. While Parliament seems to be falling apart, the economy is holding up reasonably well. July’s surprisingly strong rise in GDP suggests that it has not fallen into a recession. Even if the +0.3% m/m and 0.0% 3m/3m …
9th September 2019
The current economic backdrop means it wouldn’t usually be a good time for the Prime Minister, Boris Johnson, to push for a general election. The 0.2% q/q fall in GDP in Q2 has been followed by a suite of weak activity PMIs in August that has increased …
6th September 2019
While the 0.2% q/q decline in GDP in Q2 and the further falls in the IHS Markit/CIPS activity PMIs in August mean that there is a real risk of a recession, there are reasons to believe that GDP will rise in Q3 and a recession before Brexit will be …
5th September 2019
This Update was originally sent to clients as a Rapid Response immediately after the vote in Parliament late on Wednesday 4 th September on the Prime Minister’s call for a general election on 15 th October. Tonight was a good night in Parliament for the …
4th September 2019
While the bulk of the extra spending unveiled today in the 2019 Spending Round had already been announced, its overall stance was a bit looser than had been anticipated. This could raise GDP growth by about 0.2ppts in 2020 and by 0.1ppt in 2021, …
Services PMI showing cracks but unlikely to break The small drop back in the services PMI in August could indicate that the weakness in some parts of the economy is starting to feed through into the services sector. However, the services PMI is still at a …
Following the vote in Parliament to push on with legislation to rule out a no deal Brexit, a general election is on the cards either before or after a delay to Brexit. With the Conservatives ahead in the polls, a no deal Brexit may will remain a strong …
This Update was originally sent to clients as a Rapid Response immediately after the vote in Parliament late on Tuesday 3 rd September on the first step of plans to delay Brexit from 31 st October to 31 st January 2020. Tonight’s decision by Parliament to …
3rd September 2019
There is a wide range of plausible outcomes for the economy if the Labour Party were to win a general election. But our inkling is that the most likely result would be a moderately weaker economy than otherwise, modestly higher interest rates and bond …
The events in Parliament over the next week and a half will be crucial in determining whether Brexit will be delayed beyond 31 st October, whether there’s an election or whether there is a big step up in the chances of a no deal that could hit the …
2nd September 2019
Manufacturing is slipping into recession The fall in the manufacturing PMI in August to its lowest level since July 2012 suggests the industrial sector has continued to contract. But we doubt that manufacturing will pull the overall economy into …
The PM’s decision to suspend Parliament from the week commencing 9 th September to 14 th October has increased the downside risks to the economy by increasing the chances of a no deal Brexit on 31 st October. (See here .) Indeed, in the week that many …
30th August 2019
The surge and contraction in GDP over the first half of the year can be blamed on the original 29 th March Brexit deadline. While we expect a similar pattern in Q3/Q4 due to the current 31 st October deadline if there isn’t a no deal, we doubt it will be …
29th August 2019
Sentiment amongst businesses and consumers weakens August’s EC survey of UK business and consumer confidence raises concern that the consumer sector may soon succumb to the malaise that has taken hold in the manufacturing sector. But with real wage growth …
