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There isn’t much chance that the Monetary Policy Committee (MPC) will raise interest rates from 0.75% at its meeting on Thursday 20th June, but we expect the MPC will use the opportunity to repeat their warning from May that the markets are significantly …
13th June 2019
The labour market remained relatively robust in April, despite the drop in activity in the rest of the economy. While we do expect employment growth to slow over the rest of this year as the available pool of labour dries up, wage growth will probably …
11th June 2019
April’s GDP figures suggest that the Brexit hangover in Q2 has been heavier than we had expected. We had previously thought GDP would rise by 0.2% q/q in Q2 as a whole, but it’s now possible that GDP fails to increase at all or even contracts. … Monthly …
10th June 2019
Economic growth was virtually the same in Q1 2019 as it was in Q2 2016 when Theresa May came to power. However, the UK has still underperformed the G7 average. And given that it looks increasingly likely that there will be a no deal Brexit or another …
7th June 2019
While the economy managed a stronger-than-expected expansion in Q1, this might be as good as it gets this year. The economic news for Q2 so far has been undeniably weak. And if there is a further Brexit delay or a no deal – both of which seem more likely …
6th June 2019
Just as we had expected, global forces have contributed to 10-year gilt yields falling below 1.00% and the pound weakening to a recent low of close to $1.25. If we are right in thinking that the markets will soon become even more worried about the outlook …
5th June 2019
May’s IHS Markit/CIPS report on services was thankfully not as bad as the manufacturing and construction surveys released earlier this week. Nonetheless, it seems clear that the economy has lost momentum since the start of the year. … IHS Markit/CIPS …
While the 12 candidates for the leadership of the Conservative party are divided over the best approach to Brexit, they seem reasonably united in calling for looser fiscal policy. That could give the economy a boost next year and may well lead to higher …
4th June 2019
The sharper-than-expected drop in the manufacturing PMI from 53.1 to 49.4 means that the index is now at its lowest level since directly after the referendum in July 2016, and suggests that the sector will slip back into contraction as the boost from …
3rd June 2019
Reassuringly, following the raft of weak survey data released this week, consumer credit growth held up well in April. And with the labour market healthy and interest rates only likely to rise gradually, if at all, we doubt a retrenchment in household …
31st May 2019
The economic news for Q2 so far has been pretty poor. And we wouldn’t be too surprised if Q1’s expansion is the fastest rate of growth that the economy can muster for some time. Meanwhile, the ever increasing number of Conservative MPs queueing up to …
Consumers appeared unfazed by the political chaos, with the GfK/NOP measure of consumer confidence rising to a fresh eight-month high in May. But with the economic fundamentals of consumer spending likely to become less supportive, this improvement is …
Some of the surge in consumer spending growth from 0.3% q/q in Q4 to 0.7% q/q in Q1 might have been due to households bringing forward purchases ahead of the original 29th March Brexit deadline. If so, then it seems likely that consumer spending growth …
28th May 2019
The announcement by the Prime Minister that she will resign appears to have generated even more political uncertainty for the Bank of England to deal with. The Bank will be thankful, then, that inflation remains close to the 2% target. But if by early …
24th May 2019
Away from this morning’s political developments, April’s retail sales figures were better than most had feared. Nonetheless, the figures still suggest that GDP growth will be weaker in Q2 than in Q1. … Retail Sales …
The resignation of Prime Minister, Theresa May, supports our recent view that the chances of a Brexit deal have fallen and that the chances of another delay and a no deal Brexit have risen. While the financial markets have probably already priced this in, …
Yesterday’s revelation that inflation in April rose above the Bank of England’s 2% target captured the headlines, but inflation was actually weaker than we had expected. A closer inspection suggests that the downside surprise will be a one-off, leaving us …
23rd May 2019
The reaction to Theresa May’s “new” Brexit deal suggests that the chances of a deal have fallen and the chances of another delay, a no deal, no Brexit and/or a general election have all risen. It’s hard to build this into our forecasts, but the risk is …
22nd May 2019
CPI Inflation rose back above the Bank of England’s 2% target in April for the first time since December. And while we suspect that inflation is likely to remain above 2% for the rest of the year, as strong wage growth prompts firms to raise prices, we …
A policy rule suggests that for the time being the financial markets may be justified in taking a relatively sanguine approach towards the risk of rising interest rates. But should a Brexit deal be reached and the political uncertainty diminish, this …
21st May 2019
If you have been enjoying the respite from incessant Brexit headlines over the past few weeks, I’m afraid it’s bad news. This week’s fall in the pound to a three-month low of $1.28 reflects Brexit creeping back onto investors’ radars. And even if a Brexit …
17th May 2019
The labour market is running hot, but some people doubt that wages are rising by more than 3% a year. That is probably because higher pay growth is being driven by the small share of workers switching jobs for a large bump in their salary, as opposed to …
16th May 2019
For the remainder of this year UK assets will probably be buffeted by global trends, resulting in UK equity prices falling by about 10%, 10-year gilt yields declining from 1.05% to around 1.00% and the pound weakening from $1.29 to about $1.25. But if a …
15th May 2019
Despite the unemployment rate edging down to a fresh 45-year low, March’s figures painted a picture of a softening labour market. That is in line with our forecast for employment growth to ease this year, but we don’t think the unemployment rate will rise …
14th May 2019
Preparations for the moving target of Brexit day flattered the Q1 GDP figures and therefore could give way to a hangover in Q2. But this should just be a timing effect. How the labour market performs will be far more important for underlying growth. … …
10th May 2019
The Q1 GDP figures presented a slightly stronger picture of the economy’s recent performance than we had expected. But with some activity likely to have been brought forward, we doubt Q2 will be as good. … GDP: First Estimate (Q1 …
The sluggishness in CPI inflation can partly be explained by factors that will prove temporary. And with cost pressures building, there is scope for services inflation to push the CPI rate higher than the Bank of England expects, bolstering the case for …
9th May 2019
While the release of the GDP data for Q1 this Friday will probably show that the economy grew at a healthy clip, we doubt that Q2 will be as good. … What Q1 will give, Q2 may take …
8th May 2019
The most surprising news from the Bank of England’s Inflation Report this week was not the suggestion that interest rates need to rise more quickly than the markets currently anticipate, but the strength of the message. Governor Carney was unusually …
3rd May 2019
With Brexit having been delayed until 31st October, the slightly more upbeat tone of April’s IHS Markit/CIPS services survey was not too surprising. However, the PMI remained at a low level and we suspect that GDP growth slowed at the start of Q2. … IHS …
Even after the announcement of the six-month Brexit delay, there was never much chance that the MPC would raise interest rates from its current rate of 0.75% with the possibility of a no deal Brexit still hanging over the economy. But the hawkish tone of …
2nd May 2019
With CPI inflation still subdued, firms’ profit margins appear to have borne the brunt of the recent rises in wage costs. However, we suspect that firms will pass on rising costs to consumers in time, resulting in higher inflation and prompting the Bank …
1st May 2019
The subdued rise in borrowing in March may be because Brexit has sapped households’ desire to borrow to buy big items. At the aggregate level, low interest rates mean that debt is still manageable. … Shying away from borrowing to spend on big …
The fall back in the manufacturing PMI in April was to be expected after activity was boosted by Brexit preparations ahead of the original Brexit date of 29th March, and suggests manufacturing output will soon return to stagnation after a brief growth …
The marginal loosening in overall financial conditions since the second delay to Brexit until 31st October and the recent reduction in fears about the outlook for the global economy suggest that the UK economy should be growing much faster than the 1.6% …
30th April 2019
Given the current political impasse, it is reassuring that the GfK/NOP consumer confidence figure held steady again in April. And with the six-month delay to Brexit removing the chance of an imminent no deal, consumers’ view of the economic outlook has …
An ageing population should have dragged down participation in the labour force sharply over the past decade, but falling economic inactivity, particularly amongst women, has meant that the participation rate has dodged its demographic destiny. Given that …
29th April 2019
While the next Governor of the Bank of England may change lots of things within the Bank, the economic data will remain the biggest driver of monetary policy. And if Labour won the next general election and changed the Bank’s mandate, that would have a …
26th April 2019
The recent rise in oil prices adds to our view that inflation is likely to be higher over the next couple of years than is widely expected. This only increases the chances that, eventually, the Bank of England will hike interest rates by more than the …
Some of the surge in retail sales in Q1, which has pushed the three-month-on-three-month growth rate back up to the pace seen before the EU referendum in 2016, might have been due to households bringing forward some purchases ahead of the original 29th …
25th April 2019
If the Monetary Policy Committee (MPC) wanted to raise interest rates from 0.75%, the six-month Brexit delay provides it with a window to do so. More likely, though, is that the MPC remains in a state of inertia at the meeting on Thursday 2nd May and for …
Another fall in the budget deficit to just 1.2% of GDP in 2018/19 puts the public finances on a sustainable footing and gives the Chancellor room to provide a “deal dividend” if there is a Brexit deal or to support the economy if the UK leaves the EU …
24th April 2019
The unemployment rate is close to the natural rate, inflation is close to the target and GDP growth is close to the economy’s potential rate, but interest rates are well below most estimates of the long-run neutral rate. This oddity is possible partly …
18th April 2019
Not only did retail sales post a bumper rise in March, but February’s figure was revised up too, adding to the evidence that despite the political chaos, the economy grew at a decent rate of 0.3% q/q in Q1. … Retail Sales …
The surprising softness of CPI inflation in March (it stayed at 1.9%) suggests that weak demand on the high street as Brexit uncertainty reached its peak may have forced retailers to discount their goods. … Consumer & Producer Prices …
17th April 2019
The labour market posted another decent month in February. However, we suspect that February could mark the peak for employment growth as the survey evidence turned down sharply in recent months. … Labour Market …
16th April 2019
The widespread use of digital technology should eventually make it possible to read how the economy is faring earlier and more accurately. The “Faster Indicators” released for the first time by the ONS today are an early venture into this area. But, so …
15th April 2019
The recent Brexit-related fall in investment won’t be a big barrier to an eventual rebound in GDP growth. After all, investment hasn’t fallen by much and in the near term how efficiently capital is used is far more important for growth than how much of it …
A lot of the chatter about how stockbuilding ahead of Brexit has boosted GDP growth in Q1 ignores the fact that businesses buy many components from overseas. That’s why imports have been rising at a faster clip. And, of course, imports are a drag on GDP …
12th April 2019
The second delay to Brexit, to 31st October 2019, and developments overseas have altered the assumptions that underpin our UK economic forecasts. As such, we have tweaked those forecasts. The main takeaways are that both GDP growth and interest rates …
11th April 2019
