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The weakening in June’s CBI Distributive Trades Survey just reflected the balances returning to a more realistic level. The big picture is that retail sales volumes still seem to be growing at a fairly healthy rate. … CBI Distributive Trades Survey …
25th June 2015
The prevailing view in the markets that the MPC can raise interest rates extremely gradually over the coming years seems right to us. Granted, wage growth has begun to pick up and the Fed looks set to start raising interest rates from September. But we …
At 5.5%, the unemployment rate is getting close to past estimates of its ‘natural rate’, i.e. the rate at which further falls become incompatible with the inflation target. Indeed, the stronger labour market is why MPC member Martin Weale this week said …
24th June 2015
The UK has become significantly more exposed in recent years to the Chinese economy, which has made a poor start to 2015. But this shouldn’t cause the UK economy too many problems – Greece remains by far the biggest external threat. … UK faces bigger …
23rd June 2015
Despite the weaker tone of June’s CBI Industrial Trends Survey, it still suggests that the manufacturing sector’s recovery found some renewed momentum in the second quarter, after virtually grinding to a halt in Q1. … CBI Industrial Trends Survey …
The odds of Greece defaulting on its debt, and possibly exiting the euro-zone too, seem to be growing by the day. However, as we have stressed before, the UK’s direct economic and financial exposures to Greece are small. Granted, the UK would probably …
19th June 2015
May’s public finances figures brought some more good news to the Chancellor ahead of his first Budget of the new parliament on 8th July. However, with a long way to go in order to restore the public finances to better health, a major re-intensification of …
Alongside strong employment growth and virtually zero inflation, households are now enjoying a significant recovery in wage growth. Annual growth in average weekly earnings excluding bonuses picked up to 2.7% in the three months to April – the strongest …
18th June 2015
The Chancellor’s announcement regarding the amount of money withdrawn from pensions since the new freedoms took effect in April supports our view that the changes will provide a boost, but a relatively small one, to household spending. … Pension reforms …
The conventional wisdom is that when the US Fed changes interest rates, the UK MPC usually follows suit soon after. However, the historical record contains several exceptions to this pattern. And as the MPC emphasised in its latest minutes, its actions …
17th June 2015
The latest labour market figures contained further signs of a pick-up in nominal wage growth. If this continues without any recovery in productivity, then a rate rise could come back on the table this year. However, we remain optimistic about the scope …
May’s consumer prices figures showed that deflation lasted for just one month, but the big picture is that inflation is set to remain extremely low during the rest of 2015. … Consumer Prices & Producer Prices …
16th June 2015
One area of debate surrounding the UK’s productivity puzzle regards whether the UK’s weak productivity growth is confined to just a few sectors or is a more widespread problem. We still think that there is scope for productivity across most of the economy …
15th June 2015
Last week’s announcement by the Chancellor that he intends to pass a law to require all future governments to run a budget surplus “in normal times” engendered more accusations that he is playing politics with economic policy. However, the principle of …
12th June 2015
The latest construction output figures supported our judgement that the economic recovery has had more pace than recent GDP estimates had indicated. Given the broad-based strength of the business surveys, we still think that there is scope for the first …
May’s inflation figures should show that deflation in the UK lasted for just a month. Admittedly, this would not mean that the risk of a prolonged period of low inflation has suddenly disappeared. However, we still think that the chances of this are quite …
11th June 2015
Gilt yields have risen further over the last month despite the news that the UK has experienced deflation and the deterioration of some recent economic growth indicators. Their rise may partly reflect the influence of overseas developments – government …
10th June 2015
April’s industrial production figures provided more evidence that GDP growth is rebounding in the second quarter after its weakness in Q1. … Industrial Production …
April’s trade figures should have provoked a bit of a sigh of relief. Although the near-term outlook for the external sector does not look fantastic, at least net trade this quarter looks unlikely to repeat Q1’s big negative contribution to overall GDP …
9th June 2015
May’s BRC retail sales figures indicated that consumer spending is growing much more slowly than households’ incomes. But with unemployment low and confidence high, we still think that the income boost to spending will increase this year. … BRC Retail …
There are good reasons to think that food price inflation has reached a trough. That said, intense supermarket competition seems unlikely to lift soon, meaning that inflation in the sector could remain below-average for some time. … Has food price …
8th June 2015
Given the rollercoaster profile for government spending inherited from the coalition, there is clear scope for the Government to smooth the fiscal consolidation more evenly over this parliament. Admittedly, the Conservatives limited their room for …
5th June 2015
With the UK in deflation, growth indicators turning south and the Greek saga casting a shadow over the outlook, the MPC’s decision to keep interest rates on hold is likely to have been unanimous again. And while a return of inflation towards its target …
4th June 2015
The recovery in car sales has lost momentum this year despite the fact that the cost of credit is about as cheap as it can get. But the healthy outlook for households’ incomes, the low level of oil prices and the old age of vehicles on the road suggests …
Although net trade dragged on GDP growth in the first quarter, a more encouraging development from the point of view of a rebalancing of the economy was the 1.7% quarterly rise in real business investment. We remain optimistic about the investment …
3rd June 2015
The unexpected fall in May’s Markit/CIPS report on services shows that the economic recovery is still a bit fragile. However, there are no obvious reasons why the economy should be seeing a sustained slowdown and so we remain optimistic that the recovery …
Growth in household borrowing is beginning to strengthen in response to record-low lending rates and high levels of confidence. And since this revival is coming from a low base and household incomes are growing strongly, there is no need for the Monetary …
2nd June 2015
May’s Markit/CIPS report on manufacturing provided further evidence that the economic recovery is extremely dependent on the services sector at present. … Markit/CIPS Report on Manufacturing …
1st June 2015
Last week ended with a general sense of relative pessimism, following the lack of the expected upgrade to Q1’s GDP figure and the news that net trade was a big drag on the economy. But we are not too worried by either of these developments. Significant …
29th May 2015
While the composite index of the GfK consumer confidence survey softened in May, it remained at a high level by past standards and so still indicates that consumers are likely to spend virtually all of the strong growth in their real incomes this year. …
Since June’s meeting of the Monetary Policy Committee (MPC) comes just three weeks after the publication of the latest Inflation Report and recent data have not challenged its view that inflation will return only slowly to target, the Committee is …
28th May 2015
Whilst the second estimate of Q1 GDP confirmed that household spending growth slowed a touch at the start of the year, rising nominal wages, falling unemployment and the boost from lower food and energy prices should ensure that spending maintains a solid …
The lack of any upward revision to GDP in Q1 was a bit disappointing, but the figures will probably still be revised further ahead. Meanwhile, the big drag from net trade was hardly good news, but the domestic economy looks fairly healthy. … GDP: Second …
One upside risk to inflation is that the Conservatives try to plug some of the hole in the public finances by raising taxes on goods and services in the CPI basket. But given that they have ruled out a VAT hike, this effect shouldn’t be too large. In any …
27th May 2015
The very strong tone of the latest CBI Distributive Trades Survey suggests that the recovery in consumer spending gathered pace in the second quarter. And there are reasons to be optimistic about the outlook for the rest of this year too. … CBI …
26th May 2015
News that the UK economy finally experienced deflation in April is to be cheered – it is emphatically of the ‘good’ sort, driven by cheaper commodity prices rather than weaker demand. Looking ahead, there are still no signs that deflation is set to linger …
22nd May 2015
While April’s figures bring more good news on the current health of the public finances, a major and painful re-intensification of the fiscal squeeze will still be required for the Government to obtain an overall budget surplus in this parliament. … …
There is little reason to expect the strong growth in consumer spending seen so far this year to ease off soon. The latest business surveys indicate that employment will continue to grow rapidly over the coming months. At the same time, slack in the …
21st May 2015
April’s retail sales figures offer another reason to think that the economic recovery is not fizzling out. And with the fundamental drivers of spending looking good, we expect the consumer recovery to maintain a solid pace over the rest of the year. … …
The Conservatives have made their job of eliminating the budget deficit by 2018/19 even harder by announcing a number of unfunded policy pledges in the run-up to the election. But the fact that they have only committed to meet them by the end of the …
20th May 2015
The minutes of May’s MPC meeting supported the message from last week’s Inflation Report that the most likely next move in interest rates will be up, but not for some time. Although two members still look close to renewing their previous call for an …
The UK has finally joined other advanced economies in experiencing deflation. This is a positive development and the risk that deflation becomes ingrained and so starts to have adverse effects remains very low. Indeed, deflation may last only one month. …
19th May 2015
The recent sharp rise in government bond yields, most pronounced at the long end, has fuelled concerns about its potential adverse impact on the economy. After all, since it has not been accompanied by an increase in equity prices or a fall in corporate …
15th May 2015
Tuesday’s inflation figures look set to show that the UK slipped into deflation in April. But this is likely to have largely reflected the timing of Easter this year compared to last. Since the oil price has rebounded and wage growth is building, a …
Sterling has rallied to a six-month high against the US dollar, reflecting relief that the UK is not mired in a period of post-election political negotiations and some slightly less dovish noises from the Monetary Policy Committee. Looking ahead, however, …
14th May 2015
May’s Bank of England Inflation Report supports financial markets’ (and our own) view that the Monetary Policy Committee (MPC) is in no rush to raise interest rates. However, we do not think that the Committee’s increased pessimism about the UK’s supply …
13th May 2015
The soft tone of the labour market figures should temper expectations of a near-term interest rate rise following yesterday’s relatively hawkish comments by some MPC members. Although the fall in unemployment may be a one-off, slower jobs growth would be …
March’s industrial production figures were a tentatively encouraging sign that a recovery in the sector is resuming after several months of stagnation. … Industrial Production …
12th May 2015
We doubt that the weakness in the latest BRC Retail sales figures offers much cause for concern. Indeed, with real wages rising robustly, employment strong and consumer confidence at a 12-year high, the prospects for spending are bright. … BRC Retail …
Since the first estimate of Q1 GDP has cast some doubt over the recovery’s health, the MPC is likely to have voted unanimously again at this month’s meeting to keep interest rates on hold. And while we think that the recovery is secure, the tough fiscal …
11th May 2015
