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The Prime Minister’s decision to suspend Parliament from sometime in the second week of September until 14 th October increases the downside risks to the economy and the pound by decreasing the chances of a further delay to Brexit and increasing the …
28th August 2019
We have our doubts that a US-UK trade deal, even a “modular” one, will be easily achievable if there is a no deal Brexit. In any case, the bigger issue will still be the trading relationship between the UK and the EU. Boris Johnson’s meetings with …
23rd August 2019
The weakness in the retail surveys has led some to question whether the consumer sector will succumb to the malaise that has taken hold in the manufacturing sector. But we are sceptical the consumer sector will falter. In all our Brexit scenarios, we …
21st August 2019
Surplus not enough to put government finances back on track The small surplus in July’s public finances wasn’t enough to make up for the jump in borrowing since the start of the financial year and suggests that borrowing will overshoot the OBR’s forecast …
While much of the sharp contraction in manufacturing in the second quarter can be put down to Brexit distortions, a meaningful recovery is unlikely given the ongoing struggles of global manufacturing. But the resilience of the services sector suggests …
19th August 2019
Whereas an inverted yield curve has been a good indicator of US recessions, the UK yield curve is less reliable. The US treasury yield curve has inverted before all five US recessions in the past five decades, with only one false positive. Over the same …
16th August 2019
The inversion of the yield curve has stoked concerns about the possibility of an imminent recession, if the UK is not already in one. However, even though the downside risks to the economy have increased recently, unless there is a no deal Brexit we still …
15th August 2019
Reasonable start to Q3 The rise in retail sales in July was fairly encouraging and supports our view that the economy has picked up in Q3 after contracting by 0.2% q/q in Q2. Indeed, July’s 0.2% m/m rise in retail sales volumes beat the consensus forecast …
Back above the 2% target July’s inflation figures may dampen speculation that the Bank of England will follow in the Fed’s footsteps and cut interest rates. With stronger pay growth and the fall in the pound likely to ensure that inflation is above target …
14th August 2019
Labour market shrugs off economic contraction The labour market has shrugged off the 0.2% q/q fall in GDP in Q2, providing support to our view that the economy will recover in Q3. Indeed, employment rose by 115,000 on the quarter (consensus +60,000), the …
13th August 2019
The global shift away from risky assets and towards safer ones that seems to be underway will either be exacerbated by a no deal Brexit on 31 st October or cushioned by a deal or a delay. Although a lot of bad news has already been priced into UK gilt …
12th August 2019
The contraction in GDP in Q2 together with the partial inversion of the gilt yield curve has raised concerns that a recession in the UK is on the way if it’s not already here. Indeed, the 0.2% q/q fall in GDP in Q2 suggests the UK is half way towards a …
9th August 2019
Contraction in Q2, but recession unlikely The small contraction in GDP in Q2 throws up the spectre of a recession even before Brexit. However, almost all the weakness was because the original Brexit deadline meant that activity that would have happened in …
We probably won’t know for sure if the UK is heading for a no deal Brexit until the moment it actually happens, which would be at 11.00pm on 31 st October 2019. But there are a number of keys dates in the 84 days between now and then that could either …
8th August 2019
While it will probably be confirmed later this week that the economy didn’t grow at all in Q2, July’s PMIs provide some support to our view that GDP will rise in Q3. Admittedly, both the manufacturing and construction PMIs remained close to their …
6th August 2019
Services sector proves resilient The low level of the PMI surveys, particularly for construction and manufacturing, is consistent with the economy struggling in the aftermath of the original Brexit date. But there was some encouraging signs of …
5th August 2019
MPC living in an alternative reality In our latest UK Economic Outlook , “ An economic multiverse ” (16 th July) , we set out the different paths politics could send the economy down. The MPC took a different approach this week, forecasting an alternative …
2nd August 2019
Much like the Fed, the Monetary Policy Committee today blamed a lot of its more downbeat assessment of the outlook on the global economy. But unlike the Fed, the MPC still thinks it will probably need to raise interest rates (if there’s a Brexit deal). …
1st August 2019
Signs of stabilisation, but no rebound in the works The manufacturing PMI remained at 48.0 in July, which was slightly stronger than expected (consensus 47.7), but it still indicates that manufacturing output fell at the start of Q3. However, the ongoing …
There has been mounting speculation that the Monetary Policy Committee (MPC) will join the global loosening cycle by cutting interest rates. We think it will if there is a no deal Brexit. But if there’s a Brexit deal or many more delays, the UK could buck …
31st July 2019
Confidence strengthens, but unlikely to rise further over next few months Consumer confidence recovered a little in July, but rising concerns about a no deal Brexit could mean that sentiment soon returns to its recent lows. The composite GfK/NOP measure …
Our estimates suggest that if a no deal Brexit was fully priced into the market the pound would fall from $1.22 (€1.09) now to about $1.15 (€1.05) or a little lower. Over the past few days the pound has weakened to two-year lows of $1.22 and €1.09 in …
30th July 2019
Spending on cars has fallen sharply since the EU referendum, and unless a Brexit deal is agreed we suspect that it will remain a drag on consumer spending growth for a few years yet. Since the EU referendum in June 2016, real spending on cars has declined …
29th July 2019
Looser fiscal policy on the way It came as no surprise that Boris Johnson became the UK’s new Prime Minister this week. ( See here .) And in his first speech in Parliament on Thursday there was no sign of him rowing back on his campaign pledges for the UK …
26th July 2019
Beware of a misleading hawkish signal Key message is that the MPC has become less hawkish, but not as dovish as the markets Far more interesting than the probable decision by the Monetary Policy Committee (MPC) to leave interest rates at 0.75% on Thursday …
25th July 2019
Any spending spree by the new administration will probably be accompanied by a rise in borrowing, which could breach the current fiscal rule, especially if there is a no deal Brexit. However, fiscal rules are made to be broken, so we don’t think that this …
24th July 2019
With the pound having recently weakened to a two-year low of $1.24 and the markets seemingly no longer pricing in the possibility of official interest rate hikes if there’s a Brexit deal or delay, there may be more upside to the pound than is widely …
Despite his hard-line stance on the campaign trail, there is no way of knowing how Boris Johnson will handle Brexit once he becomes Prime Minister tomorrow. But it’s going to be turbulent and the chances of a no deal Brexit (and a general election and/or …
23rd July 2019
The Office for Budget Responsibility’s (OBR) public finance forecasts in a no deal scenario published in its Fiscal Risks Report this week really do look pretty dreadful. We suspect they overdo the gloom a bit. But either way, whether it is Boris Johnson …
19th July 2019
Heading off track June’s public finances figures continued the underlying deterioration in the fiscal position evident since the beginning of the financial year and provided a timely reminder that the next Prime Minister won’t get a free “fiscal lunch” in …
Signs of life after a soft patch The rebound in retail sales in June was a big relief as it shows that there is some life in household spending yet and suggests that the overall economy may have avoided a contraction in Q2. The 1.0% m/m rise in retail …
18th July 2019
Few signs of a rise in inflationary pressure There is little pressure for the MPC to adjust interest rates in either direction with CPI inflation remaining at the Bank of England’s 2% target for a second consecutive month in June. The continued absence of …
17th July 2019
Weaker employment growth probably here to stay The further slowdown in employment growth in May looks set to continue over the rest of this year as firms take a breath after the hiring spree in the first quarter. However, the labour market should still …
16th July 2019
Despite the rebound in monthly GDP growth from -0.4% m/m in April to +0.3% m/m in May, the economy probably just about contracted in Q2 as a whole. ( See here .) Some of that is just payback from activity being brought forward from Q2 into Q1 ahead of the …
12th July 2019
Possible contraction in Q2, but recession unlikely Despite the rebound in monthly GDP in May, the economy may have contracted in Q2 as a whole. But it’s going to be close and we doubt we’re heading for a recession as GDP will probably rise in Q3 anyway. …
10th July 2019
Investors now think the next move in interest rates will be down. The black line in Chart 1 shows the market-implied probability of the MPC cutting rates by the meeting on 30 th January has jumped from 27% to 54%. As a result, the 10-year gilt yield fell …
5th July 2019
Relatively resilient services sector won’t prevent contraction Following the falls in the manufacturing and construction surveys, the smaller decline in the headline business activity balance of the services PMI, from 51.0 in May to 50.2 in June, was a …
3rd July 2019
As long-term clients will know, we have been publishing different forecasts for the economy based on two different Brexit outcomes, “deal on 31 st October” and “no deal on 31 st October”. We are now adding a third – “repeated delays” in which the Brexit …
1st July 2019
Brexit comedown and weak global economy weigh on manufacturing The drop in the manufacturing PMI from 49.4 in May to 48.0 in June (consensus 49.2) takes it to its lowest level since February 2013 and indicates that the sector is still suffering from a …
The chances of the economy escaping a quarterly contraction in Q2 seem to be receding in light of the latest surveys and official data. Indeed, we can take less comfort from Q1’s GDP figures now that we have the second estimate. Stockbuilding is now …
28th June 2019
Boost from preparing for Brexit will reverse GDP growth was unrevised at 0.5% q/q in the first quarter of the year, but that probably marked a temporary high as activity was brought forward ahead of the original Brexit deadline. Consequently the economy …
Confidence weakens, but consumer spending should hold up Given the mounting concerns over a no deal Brexit, it is perhaps unsurprising that the GfK/NOP measure of consumer confidence dropped back in June. But with real wage growth strong and inflation …
Investors have reassessed the outlook for UK monetary policy over the last month and have gone from expecting rate hikes at the start of May to expecting cuts now. This is partly because of a weakening global outlook and mounting expectations of rate cuts …
26th June 2019
The MPC struck a markedly more dovish tone in the statement and minutes of June’s meeting compared to May’s. This was partly due to a weakening global and domestic outlook, but the rising chances of a no deal Brexit also helped to shift the MPC to a more …
21st June 2019
While borrowing was higher than expected in May, the underlying picture is healthier. That should give the next Prime Minister greater scope to borrow more to increase spending or cut taxes without breaking the fiscal mandate. … Public Finances …
The outlook for the economy should be similar with either Boris Johnson or Jeremy Hunt at the helm. After all, both have committed to loosening fiscal policy. And although both are willing to leave the EU without a deal (Johnson seems keener) either will …
20th June 2019
Given the drop in GDP in April and the fall in inflation back to target in May, there was never much chance that the MPC would raise interest rates from 0.75% today. What’s more, the tone of the statement and minutes followed the lead from the Fed and the …
Having grown unusually quickly in Q1, helped on by good weather and perhaps some purchases being brought forward ahead of the original Brexit date, retail sales growth has returned to its usual pace. That is another reason to think GDP will stagnate in …
CPI inflation is likely to bob about the 2% mark for the next couple of months, but there are still reasons to think that it will drift up again towards the end of the year. … Consumer & Producer Prices (May …
19th June 2019
Even if some of the weakness in activity in April comes back in May, GDP growth will still struggle to hit the Bank of England’s Q2 forecast of 0.2%. As such, we doubt that they will raise rates at their meeting next week and probably won’t increase rates …
14th June 2019
