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The recent slowdown in emerging market (EM) economies begs the question of whether UK exporters have shot themselves in the foot by expanding into these markets in recent years. However, the growth prospects of EMs are still more favourable than those in …
13th September 2013
The drop in the ILO unemployment rate to 7.7% in the three months to July is consistent with signs of economic recovery and takes the rate closer to the MPC’s 7% threshold. But with scope for a rebound in productivity and evidence that this is happening, …
11th September 2013
The much improved news on the UK economy has prompted investors to expect the MPC to raise official interest rates in the first quarter of 2015, 18 months earlier than the Committee has indicated they may rise. The rise in risk-free interest rates has in …
10th September 2013
By choosing the unemployment rate as its threshold for forward guidance, the MPC has been criticised for using a fairly narrow measure of slack in the labour market. However, we doubt that this will prevent interest rates being kept at 0.5% for much …
This report is only available as a PDF. Click to download. … But is it the right type of recovery for the Chancellor? …
9th September 2013
Concerns are building that the economic recovery is too reliant on an unsustainable boom in the housing market. But we think that this is giving the housing market too much credit for the turnaround in the economy. The current recovery is based on much …
One criticism levelled at Robert Shiller’s cyclically-adjusted price/earnings ratio (CAPE) is that – for the S&P 500 at least – the denominator has been depressed by accounting changes. This has led some to conclude that US equities are overvalued. But we …
6th September 2013
With Vodafone’s sale of its stake in the US telecoms company Verizon expected to deliver almost £24bn to UK investors, the potential impact has been compared to that of the Bank of England’s quantitative easing programme. But, in practice, any boost to …
5th September 2013
The Monetary Policy Committee (MPC) unsurprisingly left policy on hold today in the wake of its recent introduction of forward guidance on interest rates and the stronger economic news. But if markets continue to ignore its rate commitment, the Committee …
The run of positive economic news has continued, with quarterly GDP growth in Q2 revised up to 0.7% and August’s CIPS/Markit PMIs pointing to even stronger growth in Q3. The divergence between output and employment growth evident in the surveys suggests …
4th September 2013
With August’s CIPS/Markit measure of services activity rising to a six and a half year high, the UK economy’s dominant sector appears to be roaring ahead. But evidence that increased demand is being met more through higher productivity than rises in …
While August saw the BRC’s measure of retail sales growth slow a touch, another month of expansion should boost retailers’ confidence that a solid, if unspectacular, rise in consumer spending is entrenched. Meanwhile, the pick-up in house prices may be …
3rd September 2013
The long-awaited introduction of forward guidance has probably not had quite the impact the MPC was hoping for. We think that some members will vote to resume quantitative easing (QE) this month, although they are unlikely to muster a majority when the …
2nd September 2013
August’s CIPS manufacturing survey added to the proliferation of evidence indicating that the sector is recovering rapidly. Meanwhile, the most recent update on the usage of the Funding for Lending Scheme (FLS) indicated that the scheme is having a small …
Despite his best efforts in last week’s speech in Nottingham, Bank of England Governor Mark Carney failed to bring the markets any closer to the MPC’s way of thinking regarding the interest rate outlook and hence drive market rates lower. The obvious next …
The latest monetary indicators show that bank lending is starting to pick up. But July’s rise in lending is not as good as it seems, since it largely reflected firms swapping bond for bank finance probably in response to the rise in market interest rates. …
30th August 2013
Household borrowing is continuing to expand, but fairly modestly. Despite fears that the Bank of England’s commitment to low interest rates will spark another credit boom, the main problem still seems to be banks lending too little to households, rather …
The improving trend in consumer sentiment provides some hope that the recent rises in household spending will be maintained even though consumers’ real incomes are still being squeezed. … GfK/NOP Consumer Confidence (Aug. 13 …
While yields on gilts have continued to track those on US Treasuries closely, some decoupling is still possible. For one, both central banks have tied their monetary policy to the unemployment rate, and we believe that joblessness will fall faster in the …
28th August 2013
Bank of England Governor Mark Carney gave an unambiguously dovish maiden speech today but he still seems to be fighting a losing battle against the financial markets. It is looking as though the MPC will have to back up its words with further action, such …
August’s improvement in the CBI Distributive Trades Survey suggests that the underlying recovery in the retail sector has strengthened further. But the fact that retailers have been unable to push through price rises underlines our view that the consumer …
Consumers are still a fairly big driving force behind the economic recovery. This is a bit of a concern, given that spending has been funded by lower saving rather than rising incomes. However, last week’s breakdown of Q2 GDP showed that other parts of …
26th August 2013
Real household spending saw a further expansion in Q2, its seventh successive quarterly rise. But with earnings growth still subdued, the recovery’s foundations are hardly watertight. Nonetheless, growing consumer confidence and a ‘feel good factor’ from …
23rd August 2013
The second estimate of Q2 GDP showed that the recovery has been gathering momentum even more quickly than previously thought, with timelier data reinforcing that picture. It is looking better-balanced too. … GDP: Second Estimate & Expenditure Breakdown …
Despite signs of life in the economy, July’s public finances data suggest that these are being slow to support the fiscal figures. Admittedly, the impact of the economic recovery on the public purse may start to come through soon. But for now, the picture …
21st August 2013
We are revising up our GDP growth forecasts in response to the continued improvement in the economic news. Although there remain some constraints on growth which will keep it sub-par this year and next, we still think that we could be seeing pretty rapid …
20th August 2013
Market rate expectations rose further last week following some positive unemployment figures and the news that the Monetary Policy Committee was not unanimous in supporting forward guidance in the agreed form. However, we still think that markets are …
19th August 2013
The recovery in consumer spending seems to be becoming more entrenched. While better weather has helped support sales, the underlying picture has also strengthened. Both retail sales and non-retail spending have continued to expand. And with growing signs …
16th August 2013
July’s rise in sales volumes to a new record high is a further promising sign that a consumer resurgence is in progress. But the pattern of sales suggests the sunny weather played an important role in driving purchases. And while the boost from the good …
15th August 2013
MPC member Martin Weale’s vote against the introduction of forward guidance will hardly help to reassure the markets about the strength of the MPC’s commitment to keep interest rates low. … MPC Minutes (Aug.) & Labour market …
14th August 2013
Although July’s fall in inflation was largely a reflection of unusual price movements in the same month last year, we think a sustained fall in price pressures is now in train. … Consumer Prices & Producer Prices …
13th August 2013
A notable development over the past year has been the further step down in the rate of nominal pay growth. This seems most likely to have reflected the previous slowdown in productivity growth, although pay growth may lag behind even as productivity …
12th August 2013
The MPC took a bold step with its forward guidance on interest rates last week, although the various “knockouts” left some wondering whether it created more confusion than it cleared up. Indeed, the MPC may still want to do more to stimulate the economy. …
While the MPC has emphasised that interest rates will not automatically rise when unemployment reaches 7%, the Committee could arguably have been bolder in setting a lower threshold. … Could the MPC have been bolder with its …
9th August 2013
June’s trade figures suggest that the external sector is now joining in the economic recovery. But while the trade deficit narrowed, a recovery that continues to be primarily led by the consumer will suck in imports. So sustained rebalancing is likely to …
Given the headwinds that still face the economy, identifying what is driving the recent momentum in the economy is a puzzle. One factor which might be playing a role is the shifting of income by high-earners into the current tax year in order to gain from …
Much has already been made of the absence of a fall in interest rate expectations and short gilt yields in response to the “forward guidance” announced by the MPC yesterday. But this does not suggest that policy has been entirely ineffective. Gilt yields …
8th August 2013
The absence of a fall in market interest rates after yesterday’s forward guidance does not mean that the tactic has been ineffective, as evidence shows it had a significant impact before it was announced. … Impact of forward guidance is greater than it …
The MPC’s new “forward guidance” supports our view that interest rates are unlikely to rise until 2016 or even 2017, even if the recovery keeps strengthening. … Bank of England Inflation Report …
7th August 2013
The further improvement in the economy has sparked suggestions that the UK has now reached “escape velocity”. A continued strong recovery is certainly possible, but it would be complacent to assume that it is now somehow guaranteed and that policymakers …
6th August 2013
June’s surge in industrial production was the most convincing sign yet that the sector is sharing in the recovery already underway in the rest of the economy. While industry will struggle to replicate June’s strong growth, a gradual recovery in production …
The strong expansion in July’s BRC measure of retail sales suggests that the consumer recovery continued apace at the start of the third quarter. But falling real earnings and lacklustre job growth raise doubts about the sustainability of this resurgence. …
The run of generally good economic news continues. In view of the economy’s recent performance, we have raised our forecast for GDP growth this year from 0.2% to 0.8% (although we have left our forecast for 2014 at 1.5%). … Recovery still developing …
5th August 2013
With July’s CIPS/Markit measure of services activity rising to a level unseen for six and a half years, a recovery in the dominant part of the UK economy looks increasingly entrenched. While some temporary factors may have played a role in boosting …
While the recovery across the pond may have softened, momentum in the UK economy seems to be building. The extent to which the UK can keep this up will be shaped by what we learn in this Wednesday’s Inflation Report. The MPC’s decision about forward …
An expansion in ‘payday lending’ may be contributing to the recent growth in unsecured credit. But, over time, the cost of servicing a rising stock of high-interest debt will depress consumers’ spending by more than that of mainstream unsecured borrowing. …
2nd August 2013
Today’s Monetary Policy Committee (MPC) meeting was always looking likely to be a non-event ahead of the announcement about forward guidance due next week. Our best guess is that the MPC will commit to keep official interest rates low until an …
1st August 2013
July’s CIPS/Markit report on manufacturing gave the most encouraging signal to date that the industrial sector’s recovery is gathering momentum. … CIPS Report on Manufacturing …
Net new lending to commercial property was negative for the 19th consecutive month in June and we do not think that the end of the deleveraging process is in sight yet. But with wider sentiment improving, sluggish lending activity will not be enough to …
29th July 2013
The UK’s monetary indicators continue to paint a mixed picture, with respectable growth in broad money contrasting with further falls in bank lending, particularly to firms as a whole. However, a tentative pick-up in lending to SMEs suggests that April’s …
