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February’s producer prices figures revealed another sharp rise in firms’ costs. But they also provided a bit of reassurance that consumer price inflation should still fall sharply next year. … UK Producer Prices …
11th March 2011
With the economic outlook little clearer than when it last met, it was never that likely that the Monetary Policy Committee would act today. We still think that the chances of an interest rate rise in the next few months have got pretty close to 50/50. …
10th March 2011
January’s UK industrial production figures show that the manufacturing recovery has retained a lot of momentum. But given the sector’s relative small share of GDP, it will still make only a modest contribution to the overall economic recovery. … UK …
Temporary factors drove at least part of the improvement in the UK’s trade position in January. As with the rest of the economy, reading the underlying trend at the moment is fairly tricky. Nonetheless, we still doubt that the external sector will fully …
9th March 2011
House prices fell a little further in February and activity levels remained static at depressed levels. Consistent with that, the BRC survey brought further evidence that the squeeze on household incomes, as well as rising uncertainty over job security …
8th March 2011
The Monetary Policy Committee (MPC) seems to be getting closer to raising interest rates soon. However, most members still want to wait for a clearer picture regarding the underlying pace of recovery. And the latest data have done little to clarify …
7th March 2011
The rise in oil prices has raised fears about the prospects for the economic recovery. Obviously the economy has changed a great deal since the oil price shocks of the 1970s, when sharp oil price rises pushed the UK into recession. Nonetheless, the …
UK markets appear to have become less optimistic over the outlook for the economy against a background of an uncertain global environment, surging oil prices, high and rising inflation and the threat of monetary tightening. UK equities have …
4th March 2011
The latest decline in the Halifax house price index underlines that the pressures weighing on prices are still very much with us. If, as we expect, these pressures build this year – for example, if unemployment rises sharply – then significant house price …
A two speed recovery appears to be emerging, with a buoyant manufacturing sector contrasting with a struggling housing and consumer sector. … Two speed recovery …
3rd March 2011
February’s UK CIPS/Markit report on services showed that growth in the biggest part of the economy has slowed since January’s post-snow rebound. However, it remains hard to gauge how well the underlying recovery is faring. … UK CIPS/Markit Report on …
Concerns about the knock-on effects of the rise in inflation on inflation expectations tend to focus on the expectations of households and financial markets. But of most direct importance for the inflation outlook is whether firms think that there has …
2nd March 2011
The MPC’s preferred measure of broad money growth has continued to accelerate and is now getting pretty close to the rates the Committee has been aiming for. However, we doubt that this growth can be sustained when bank lending is still so weak. … …
1st March 2011
Today’s data further highlight the growing divergence between the strength of the recoveries in the industrial and consumer sectors of the UK economy. … CIPS/Markit Report on Manuf. (Feb.) & H'hold borrowing …
This morning’s data paints a picture of a housing market that is struggling for direction. But while the pace of any further falls is hard to judge, with mortgage demand so low, February’s modest rise in the Nationwide house price index is unlikely to be …
The Monetary Policy Committee has suggested that nominal GDP growth can be sustained even if money growth remains weak. This might happen to some extent. But the big picture is that money growth at its current rates is still consistent with a sluggish …
28th February 2011
The MPC’s hawks now need the support of just two more members to push through an interest rate rise. Some members (such as Paul Tucker) look more likely to switch sides than others (such as Charlie Bean or David Miles), but ultimately what rates do will …
The slight downward revision to UK GDP in Q4 means that, snow effects aside, activity is now estimated to have contracted a touch at the end of last year. Although the economy bounced back in January, it remains unclear how far this just reflects weather …
25th February 2011
The CBI’s latest surveys suggest that any bounce-back in overall household spending following December’s heavy snow has been short-lived. We continue to think that household spending may fall by around 0.5% this year. … UK CBI Services (Q1) & Dist. Trades …
24th February 2011
In this morning’s MPC minutes, the Committee voiced some concern about how a rate rise might affect consumer confidence. The relationship between interest rates and consumer confidence has weakened since the early 1990s. But with consumers’ incomes …
23rd February 2011
The hawkish tone of February’s UK MPC minutes suggests that the chances of a near-term interest rate rise are higher than previously thought. Indeed, we would now put the chances of a May hike at pretty much 50/50. However, the minutes made it clear that …
January’s public finance figures provided reassurance that the Government is on track to meet this year’s borrowing forecasts. However, we continue to think that the slowing recovery will mean that the Government struggles to meet its borrowing forecasts …
22nd February 2011
Tentative evidence of a rise in pay settlements has raised concerns that the much-feared wage-price spiral is kicking off. However, we remain sanguine about the outlook for pay growth and continue to think that weak wage growth will help inflation to fall …
21st February 2011
We readily admit that we toyed last week with putting a near-term rate rise into our forecast. But, on balance, we are still not quite convinced that a rate rise is now more likely than not. … Near-term rate outlook still finely …
Snow effects are obviously distorting the picture at the moment. But as far as we can tell, the underlying recovery may be struggling a bit. … Post snow bounce-back unlikely to …
18th February 2011
January’s official UK retail sales figures showed that, like the rest of the economy, high street spending bounced back at the start of the year after December’s snowrelated dip. However, the underlying trend looks unspectacular and we still think that a …
February’s Bank of England Inflation Report left the outlook for UK interest rates very finely balanced. But we remain firmly of the view that the markets are currently significantly overstating the likely level of rates over the next couple of years. … …
16th February 2011
The latest UK labour market figures provide further evidence that the jobs recovery has gone into reverse. We continue to think that over the next few years unemployment will climb from its current level of 2.5 million towards 3 million. … UK Labour …
January’s UK consumer prices figures came as something of a relief given the potential for another nasty surprise this month. Although inflation could yet rise further over the next few months, we still expect it to drop back sharply next year. … UK …
15th February 2011
The Chancellor is upping the pressure on banks to lend more. But with banks’ funding problems really coming home to roost this year, he might soon feel like he is banging his head against a brick wall. … Funding problems to keep lid on bank …
14th February 2011
This week’s Inflation Report will give us a clearer idea of how close a shave last week’s Monetary Policy Committee (MPC) meeting was. Although the Committee will probably revise down its forecasts for economic growth this year, its forecasts for …
Today’s producer prices figures will add to concerns about the persistence of inflationary pressures. However, we still expect inflation to fall sharply next year. … UK Producer Prices …
11th February 2011
There had been little to suggest that the Committee had altered its view since the last meeting, so the no-change decision today was of little surprise. However, the next meeting – coinciding with May’s Inflation Report – is the key crunch time. We still …
10th February 2011
December’s official industrial production figures suggested that, like the rest of the economy, the manufacturing recovery was blown off course by the bad weather at the end of the year. … UK Industrial Production …
We doubt that the lending commitments announced as part of today’s “Project Merlin” will lead to a significant pick-up in bank lending growth. … Project Merlin no magic fix for bank …
9th February 2011
The deterioration in the UK’s trade position in December primarily reflects temporary factors such as the snow. However, the underlying trend is still pretty dismal. … UK Trade …
The MPC’s reluctance to raise interest rates despite persistently high inflation has led to accusations that it has been inconsistent in its treatment of its inflation target. However, there may be good reasons for the MPC’s “asymmetry”. … Is the MPC …
The recent poor run of news on the domestic economic recovery and fears that the Monetary Policy Committee is moving towards hiking official interest rates soon in response to high inflation appear to have raised concerns that the UK is heading for a …
Perhaps the biggest risk facing the household sector is the possibility of a near-term interest rate rise. We do not think that a modest rate rise would have a disastrous effect on household incomes, although the wider effects of a rate increase could be …
8th February 2011
The minutes of the last Monetary Policy Committee (MPC) meeting suggested that the Committee was edging closer towards a near-term rate hike. But the sharp slowdown in the economic recovery at the end of last year is likely to discourage any members …
7th February 2011
The mood improved considerably after last week’s CIPS/Markit surveys which seemed to suggest that the recovery is back on track again. But, the big picture is that the underlying trend in both the construction and services sector has slowed significantly. …
The bounce in house prices in January is unlikely to signal the start of a rising trend. With the economic fundamentals of the housing market still very weak, the most likely scenario is for house prices to end the year significantly below where they …
4th February 2011
The rebound in the CIPS/Markit surveys in January provides some reassurance that the 0.5% drop in GDP in the final quarter of last year was primarily due to the effects of the snow. However, as far as we can tell, the underlying trend in growth still …
3rd February 2011
The bounce-back in the UK CIPS/Markit report on services in January confirms that the drop in activity in December was partly a temporary result of the snow. Nonetheless, the underlying trend still appears to have slowed. And given the large amount of …
Broad money growth is still exceptionally weak, adding credence to the view of the majority of those on the Monetary Policy Committee that inflation will fall back sharply in time. … Monetary Indicators Monitor …
1st February 2011
January’s UK CIPS/Markit report on manufacturing suggested that the industrial recovery is still going from strength to strength. But other news on the housing market and money growth gave a more subdued picture of activity in other parts of the economy. …
The renewed falls in mortgage market activity are weighing on house prices. With lending unlikely to pick up significantly this year, due to constraints on both supply and demand, recent falls in house prices are unlikely to prove short-lived. … …
Following last week’s news of a surprise drop in GDP at the end of last year, the wisdom of the Government’s austerity plans has once again been called into question. Accordingly, the coalition would do well to start thinking about possible contingency …
31st January 2011
Yesterday’s disappointing GDP figures re-ignited concerns about a return to so-called “stagflation” – the toxic combination of high inflation and high unemployment/weak economic growth that plagued the UK during the 1970s and early 1980s. However, we …
26th January 2011
