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Chancellor a bit more generous, but may fall short on long-term growth Today’s Budget has taken a bit of a backseat given the renewed worries about the global banking system, but the Chancellor was a bit more generous than we expected and we suspect he …
15th March 2023
This checklist helps clients keep track of the key forecasts announced during the Spring Budget at 12.30pm (GMT) on Wednesday 15 th March. Our more detailed preview is here . We will send a Rapid Response shortly after the speech, we are hosting a “Drop …
14th March 2023
Wage growth eases despite labour market remaining tight The labour market remained tight in January. Even so, the Bank of England will breathe a sigh of relief as wage growth is easing. Together with the collapse of a couple of US banks having tightened …
Wage growth eases despite labour market remaining tight The labour market remained tight in January. Even so, the Bank of England will breathe a sigh of relief as wage growth is easing. But the fallout from Silicon Valley Bank’s collapse suggests that the …
13th March 2023
We have revised up our forecasts for real GDP and no longer think the economy will be quite as weak. This has very little to do with the 0.3% m/m rise in real GDP in January released this morning. Most of that was a rebound after the widespread strikes …
10th March 2023
January’s strength won’t prevent contraction in GDP in Q1 The 0.3% m/m rise in real GDP in January (consensus +0.1% m/m, CE +0.4% m/m) will raise hopes that the economy will escape a recession in 2023 and will increase calls for the Chancellor to splash …
Resurgence in activity unlikely to last The 0.3% m/m rise in real GDP in January (consensus +0.1% m/m, CE +0.4% m/m) leaves the economy in better shape than we had expected just a few months ago. But looking beneath the surface, the figures suggest the …
The numerous “plans for growth” that have been announced by the Government, the Opposition, and various commentators in recent months vary in their analytical rigour but all miss one crucial point: many of the reforms required to lift the UK’s pitifully …
9th March 2023
We expect the Spring Budget on 15 th March to contain some giveaways confined to 2023/24. But a downgrade to the Office for Budget Responsibility’s (OBR) medium-term GDP growth forecasts will prevent an unwinding of the £54bn (1.8% of GDP) of fiscal …
8th March 2023
What will UK Chancellor Jeremy Hunt deliver in his Spring Budget? Will he be able to splash any cash, will he hold back sweeteners until closer to the next general election, or will the OBR’s new economic forecasts tie his hands? Group Chief Economist …
7th March 2023
Brexit looking a bit brighter The economic developments this week were generally positive, starting with news that the Prime Minister, Rishi Sunak, struck a deal with the EU on trading arrangements for Northern Ireland, officially known as the Windsor …
3rd March 2023
Higher interest rates hurt housing, but other borrowing remains strong While January’s money and credit figures suggest that higher interest rates are continuing to act as a drag on the housing market, they appear to be having less influence in other …
1st March 2023
A widening in profit margins could mean that inflation is slower to fall back to the Bank of England’s 2.0% target than we expect. That would cause the Bank to raise interest rates even further than we currently anticipate and/or keep them higher for …
28th February 2023
Higher interest rates hurt housing but not other borrowing January’s money and credit figures suggest that higher interest rates are continuing to act as a drag on the housing market, but they appear to be having less influence in other areas of the …
The more hawkish tone in financial markets this week is justified. Prior to this week, investors seemed to be optimistic that the previous increases in interest rates would be enough to bring inflation back down to the Bank of England’s 2.0% target, and …
24th February 2023
The recent resilience of economic activity has left us comfortable with our view that the Bank of England will raise interest rates from 4.00% now to a peak of 4.50%, rather than to 4.25% as analysts expect, and keep rates at that higher level all year. …
23rd February 2023
There is mounting evidence that households’ pandemic savings will no longer be able to support real spending. That implies from now on, real consumer spending will have to evolve in line with real incomes. The conventional wisdom is that households and …
22nd February 2023
PMIs suggest activity rebounded in February, but we doubt it will last The sharp rebound in the flash UK composite PMI in February suggests that the economy remained resilient to the dual drags from high inflation and high interest rates at the start of …
21st February 2023
Tighter fiscal policy probably still on its way despite borrowing undershoot January’s public finances figures suggest the Chancellor will have scope for some giveaways in his Budget on 15 th March. But with the OBR poised to slash its medium-term GDP …
Tighter fiscal policy probably still on its way despite big borrowing undershoot January’s public finances figures suggest the Chancellor may have scope for some giveaways in his Budget on 15 th March. But with the OBR poised to slash its medium-term …
PMIs suggest activity rebounded in February, but we doubt it will last The sharp rebound in the flash UK composite PMI in February suggests the economy continued to remain resilient to the dual drags from high inflation and high interest rates. But we …
20th February 2023
Being ranked by the Sunday Times as the top UK economic forecaster for 2022 is a great accolade and has generated a lot of interest in what we expect to happen next. Our forecasts for 2023 imply a tougher year than the consensus, with higher inflation …
In a previous edition of the UK Economics Weekly we said that the CPI core services inflation and private sector pay figures released this week would prove pivotal in determining whether the Bank of England raises interest rates further or calls time on …
17th February 2023
Too soon to conclude that retail is coming out of its funk The rebound in retail sales in January was better than expected, had echoes of the leap in US retail sales and suggests that the festive/new year period wasn’t a complete write-off. But while …
2023 may be better than 2022 for retailers, but it will still be a struggle The 0.5% m/m rise in retail sales volumes in January was better than the consensus forecast of a 0.3% m/m decline (CE +0.5% m/m), echoes the leap in US retail sales earlier this …
The UK avoided a recession last year partly because of more spending by households on restaurants and trains and partly because of more investment by businesses in aircraft, cars and cruise ships. This suggests the recovery from the pandemic cushioned …
16th February 2023
Moderating services inflation makes Bank of England’s life easier The fall in CPI inflation from 10.5% in December to 10.1% in January (consensus and CE forecast: 10.2%, BoE forecast: 10.1%), the drop in the core rate from 6.3% to 5.8% and the easing in …
15th February 2023
Moderating services inflation makes Bank of England’s life easier The sharp fall in CPI inflation from 10.5% in December to 10.1% in January (consensus and CE forecast: 10.2%) was the most eye-catching part of today’s CPI release. But it is the easing in …
Wage growth continues to accelerate despite cooling labour demand December’s labour market data showed that, despite an easing in labour demand, labour market conditions stayed tight and the market continued to support strong wage growth. The Bank of …
14th February 2023
Wage growth continues to accelerate despite cooling labour demand December’s labour market data showed that, despite an easing in labour demand, labour market conditions stayed tight and the market continues to support strong wage growth. The Bank of …
13th February 2023
It doesn’t really matter if the economy was in recession last year or not (although according to the technical definition it was not). (See here .) Two other factors are more important. First, recession or no recession, the economy is weak. Real GDP …
10th February 2023
Recession may come this year as resilience recedes The economy escaped a recession in 2022 by the skin of its teeth (£77m to be precise). But with the full drags from high inflation and high interest rates yet to be felt, we think there will be a …
Avoiding a recession in 2023 will prove harder The 0.5% m/m fall in real GDP in December was worse than expected (consensus -0.3%), but the 0.0% change in Q4 (consensus 0.0%, BoE +0.1%) meant that the economy avoided a recession last year by the skin of …
We think business insolvencies may rise to a record high of around 8,400 per quarter by Q2 2024 and take until at least early 2025 to return to a more “normal” level of just over 4,000 per quarter. The total rise in insolvencies above this normal level is …
9th February 2023
Since the full effects of the previous surge in energy prices and the hike in interest rates have yet to be felt, we still think the economy will succumb to a recession this year. Admittedly, pandemic savings and the government’s handouts appear to have …
8th February 2023
While the Bank of England raised interest rates by a further 50 basis points (bps) yesterday, from 3.50% to 4.00%, it hinted that if Bank Rate is not already at a peak, it is very close to one. As we unpacked in our “Drop-In” webinar on this week’s policy …
3rd February 2023
While raising rates by 50 basis points (bps) today, from 3.50% to 4.00%, the Bank of England implied that rates are very close to their peak. We still think that rates may rise to 4.50%, but perhaps via two 25bps increases rather than one 50bps rise. …
2nd February 2023
Rates closing in on their peak, but rate cuts unlikely to come until 2024 While raising rates by 50bps today, from 3.50% to 4.00%, the Bank of England implied that rates are very close to their peak. We still think that rates may rise to 4.50%, but …
With interest rates nearing a peak, the next two phases of monetary policy will most probably be rates being held at that peak and then being cut. The Bank of England may soon provide some guidance on both, although ultimately it will be the economy that …
1st February 2023
The shift away from floating-rate to fixed-rate mortgages has meant that it was always going to take longer than in past tightening cycles for the rise in interest rates to feed through to the real economy. This is one reason why we think that once Bank …
While we expect employment to weaken, it’s happening at a glacial pace. That feeds into our view that once interest rates peak (perhaps at 4.50% up from 3.50% now) they will stay high for all of this year. Employment rose by 27,000 between August and …
31st January 2023
Drag from higher interest rates intensified in December December’s money and credit figures revealed that higher interest rates further dampened economic activity at the end of last year. Moreover, the drag on activity will continue to intensify this …
Drag from higher interest rates intensified in December December’s money and credit figures revealed that higher interest rates further dampened economic activity at the end of last year. Moreover, the drag on activity will continue to intensify this year …
The shift away from floating-rate to fixed-rate mortgages presents risks as well as benefits. It will protect homeowners who are lucky enough to have a long time remaining on their fixed rate contract from higher mortgage payments. But that reduces the …
30th January 2023
While an improvement in appetite for risk has fuelled a strong start to 2023 by UK equities and sterling, we doubt this will remain a source of support as recessions in the US, the UK and the euro-zone economies take hold. We anticipate the FTSE 100 …
The recent persistence of inflation leads us to think that the Bank of England will proceed with another 50 basis point (bps) rise in Bank Rate, from 3.50% now to 4.00% next Thursday. (See here .) We will be discussing the policy outlooks for the BoE, the …
27th January 2023
Despite some good news, another 50bps rate hike is most likely Next phase will be MPC pausing to assess influence of higher rates, but we’re not there yet Next big surprise may be that rates are cut by more than investors expect in 2024 Another 50 basis …
26th January 2023
Recession on the cards for 2023 The renewed fall in the flash UK composite PMI in January suggests that some of the resilience in economic activity towards the back end of 2022 petered out in early 2023. That supports our view that the economy is …
24th January 2023
Big Budget giveaways will have to wait until March 2024 December’s worse-than-expected public finances figures suggest the Chancellor will wait until closer to the next election before announcing any significant tax cuts and/or spending rises. Public …
Borrowing overshoot further limits chances of big Budget giveaways December’s public finances figures provided more evidence that the government’s fiscal position is deteriorating fast. And high government spending in the early months of 2022/23 and the …
