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February’s fortuitously timed improvement in the public finances has given Mr Darling scope for some pre-election sweeteners in next week’s Budget. But make no mistake – a long and painful fiscal squeeze still lies ahead. … Public Finances …
18th March 2010
The Monetary Policy Committee seems increasingly concerned about the risk of a rise in inflation expectations. But we think that those concerns are misguided and could lead to a policy error. … MPC shouldn’t fret about inflation …
17th March 2010
The minutes of March’s Monetary Policy Committee (MPC) meeting confirmed that the Committee is content to sit back for now and see how the effects of its past asset purchases pan out. But while it may have been encouraged by the drop in claimant count …
Last week’s trade figures probably won the prize for most disappointing economic data so far this year. Although the snow may have been partly to blame, there has been a deteriorating trend in the trade balances for about six months now. … Lower pound …
15th March 2010
Over the last month, central banks have continued to withdraw some of the unconventional liquidity provisions offered to the money markets. The US Federal Reserve raised its discount rate from 0.50% to 0.75% on 18th February, while the European Central …
11th March 2010
The main success of the Bank of England’s policy of quantitative easing (QE) has been the recent rise in asset prices. However, QE appears to have played only an indirect role in the housing market rebound, suggesting that an extension of the policy won’t …
Concerns that the Monetary Policy Committee (MPC) is nearing the limit of how much quantitative easing (QE) it can undertake are probably overdone. Nonetheless, the potential for QE to spark an asset price bubble means that any sensible central bank is …
10th March 2010
January’s fall in UK industrial production, while possibly weather affected, has put a bit of a dent in hopes that the economic recovery might have picked up speed in the first quarter of the year. … UK Industrial Production …
February’s UK trade figures suggested that the much needed pick-up in the external sector is still not in evidence. While other data also underlining the vulnerability of the housing and consumer sectors, the outlook for the overall economy remains pretty …
9th March 2010
We think that cutting Bank Rate all the way to zero remains a potential tool in the Monetary Policy Committee’s arsenal. None of the obstacles to lower rates put forward by the MPC seem insurmountable - after all, they have not stopped rates falling to …
8th March 2010
Last week brought further tentative indications that the recovery in the housing market might be losing a little steam. Both the Halifax and Nationwide recorded falls in house prices in February while recent indicators of demand and activity have also …
February’s UK producer prices figures have brought the first hints that cost pressures in the production sector may be starting to ease a bit. … Producer Prices …
5th March 2010
The MPC remains in wait and see mode while it assesses the economic outlook and the impact of its previous policy measures. But with the recovery sluggish, inflation worries set to ease and a major fiscal squeeze still approaching, further support from …
4th March 2010
The decline in the Halifax house price index is further evidence that the housing market recovery took a backward step at the turn of the year. It is possible that temporary factors mean that recent data overstate the true extent of the weakness. Even so, …
This report is only available as a PDF. Click to download. … Halifax House Prices (Feb.) …
The combination of a sluggish recovery in the economy and concerns over the UK’s fiscal position and credit rating has weighed on UK asset markets over recent weeks. The rally in the equity market has lost steam, while UK bonds have underperformed their …
3rd March 2010
Fears that the general election will result in a hung parliament may continue to weigh on the pound in the coming weeks. But the prospect of a major fiscal squeeze under any form of government should eventually prove positive for the exchange rate. … …
February’s CIPS/Markit report on services suggested that, after the weather and VAT-related setback seen at the start of the year, the recovery in the biggest part of the economy is back on track. … UK CIPS/Markit Report on Services …
The Monetary Policy Committee voted to pause its programme of quantitative easing (QE) at its latest meeting. But both the Inflation Report - showing inflation undershooting its target further ahead - and various comments by MPC members have left the door …
2nd March 2010
This week marks the one year anniversary of the launch of the Bank of England’s quantitative easing (QE) programme of asset purchases. As Mervyn King has pointed out, without QE, the UK would probably have experienced a sharp monetary contraction. But …
1st March 2010
February’s CIPS/Markit report on manufacturing brought evidence that the industrial side of the economy is continuing to recover. But there are still major uncertainties over the outlook for the overall economy. … CIPS/Markit Report on Manufacturing …
Comments from the Monetary Policy Committee (MPC) dominated events last week, with the key message being that a further extension of quantitative easing (QE) could soon be on the cards. Of course, we already knew as much from the recent Inflation Report …
Today’s Nationwide house price index suggests that the New Year slump in buyer enquiries and mortgage lending may have reflected, not only the snow and the end of the stamp duty holiday, but also growing concerns about the durability of the economic …
26th February 2010
The second estimate of Q4 GDP did little to alter the picture of a very fragile recovery in the UK economy. We still expect GDP growth of only about 1% in 2010. … GDP: Output, Income and Expenditure …
It is still early days, but our prediction last month that April would be the high water mark for house price inflation appears to have been borne out. For now, house prices continue to rise, but easing supply shortages, overvaluation and, of course, the …
The Monetary Policy Committee (MPC) is unlikely to take any action this month. After all, it is still justifying why it did nothing last month! But the Committee has left the door firmly open to a further extension of its programme of quantitative easing …
25th February 2010
The argument over whether Labour’s National Insurance rise or the Conservatives’ efficiency savings will cost more jobs detracts from the bigger picture that the required fiscal squeeze will result in the loss of up to 750,000 public sector jobs over the …
The new year got off to a very weak start. Admittedly, temporary factors played some part in this. Not only did the snow discourage spending, but consumers may have pulled forward purchases of bigticket items to the end of last year in order to beat the …
22nd February 2010
Last week was clearly one to forget in terms of news on the UK economy. Inflation rose to a 14 month high, unemployment resumed its upward trend, bank lending weakened, retail spending collapsed and January’s public finances figures drew comparisons …
The UK has not been alone in seeing inflation rise recently, prompting the Monetary Policy Committee (MPC) to suggest that common factors may therefore be keeping inflation high globally. However, a closer look suggests that the overseas inflation picture …
18th February 2010
January’s UK public finances figures suggested that this year’s budget deficit could exceed that of Greece and further underlined the need for more decisive action to improve the fiscal position when the economy is strong enough to withstand it. … Public …
While the recent rise in consumer price inflation has been driven by temporary factors such as the VAT hike and higher energy prices, one potentially more persistent influence is the rapid growth of unit wage costs. But this is unlikely to prevent …
17th February 2010
The minutes of February’s Monetary Policy Committee (MPC) meeting suggested that the pause in the Committee’s quantitative easing (QE) programme may be only temporary. If the recovery disappoints – and the latest labour market figures were hardly …
January’s consumer prices figures should provide some reassurance that, behind the special factors currently pushing inflation higher, underlying price pressures in the UK economy remain pretty subdued. … UK Consumer Prices …
16th February 2010
It has been suggested that central banks are already effectively tightening policy by withdrawing the emergency liquidity provided to the financial system during the depths of the crisis. But in the UK’s case, most of the support is actually still in …
15th February 2010
Last week’s Inflation Report was always likely to show a downward revision to the MPC’s growth forecasts and it duly delivered. But less certain was whether the recent rise in inflation would have shaken the MPC’s belief that a large amount of spare …
Greece is the word in the financial markets at the moment. But aside from the potential for weak puns like that (“Greek tragedy”, “acropolis now” etc.), what do recent developments there mean for the country itself, for the European single currency and …
12th February 2010
Concerns about the fragility of the domestic recovery have recently outweighed those regarding the sustainability of the UK’s public finances and the Bank of England’s decision to pause its programme of “quantitative easing.” Gilt yields of all maturities …
In yesterday’s Inflation Report, the Bank of England highlighted the uncertainties surrounding the amount of spare capacity in the economy. Indeed, the recent stubbornness of UK inflation has led to concerns that, despite the deep recession, there is only …
11th February 2010
The distinctly dovish tone of the Bank of England’s February Inflation Report begs the question of why the Monetary Policy Committee (MPC) did not implement a further extension of its quantitative easing programme last week. But the door to further policy …
10th February 2010
December’s UK industrial production figures raised hopes that industry made a stronger contribution to GDP growth in Q4 than previously thought. But that does not alter the big picture of a very sluggish economic recovery. … UK Industrial Production …
Further changes to VAT are an appealing option for improving the fiscal position. But by pushing inflation even higher and perhaps limiting the scope for offsetting monetary support, excessive increases could have particularly damaging consequences for …
9th February 2010
The MPC’s decision to pause its quantitative easing (QE) programme has intensified the debate about whether it is the stocks or flows of asset purchases that matter most for the economy. The answer is probably both. But regardless of how QE is working, …
8th February 2010
Several recent developments appear to have cast some doubt over the likelihood and size of the widely expected post-election tightening of fiscal policy. Recent opinion polls have raised the chances of a hung parliament, while the Conservatives seem to …
There are worries that a hung parliament could lead to higher interest rates and a lower credit rating – a nasty scenario for sterling assets. But with monetary policy set to remain extremely loose and a strong cross-party consensus for fiscal restraint, …
4th February 2010
The Monetary Policy Committee’s decision not to extend its quantitative easing programme further this month does not necessarily mark the end of its extraordinary efforts to support the economy. And any tightening of policy conditions remains a long way …
