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- Omicron fears already have led people to travel and visit restaurants, shops and cinemas less often.
- Booster jabs are containing hospital admissions, but people still have good reasons to avoid being infected.
- While boosters and school holidays will weigh on cases, Omicron and Christmas festivities will keep R>1.
- The MPC would ease monetary policy again in the unlikely event that another lockdown is imposed.
- Fiscal policy would be less supportive than in previous lockdowns; new curbs would dampen inflation.
- Negative rates are in the toolkit and are preferred to more QE; Bank Rate likely would be cut to -0.25%.
- Markets expect the MPC to hike Bank Rate by nearly 100bp next year, the most in one year since 2007.
- Rising mortgage rates likely would subtract just 0.1pp from households' disposable incomes next year...
- ...But house prices would flatline, so 100bp is on the limit of feasibility; Omicron brings downside risks.
- Households last month saved the least and borrowed the most for consumption since the pandemic began...
- ...People are maintaining their spending while real incomes are falling; they aren't bingeing.
- Firms continued to repay external finance in October, but this isn't necessarily a bad sign for investment.
- Recent activity data have surprised to the upside, but the Omicron variant casts a shadow over Q1.
- The near-term path for inflation looks much higher than a month ago, after October's above-consensus data.
- The MPC likely will hike Bank Rate in December, but markets' expected 2022 rate path looks far too steep.
The fast rollout of boosters has reduced U.K. hospital admissions, whereas they are surging across Europe.
Economic contagion for the U.K. in the event of fresh restrictions in the rest of Europe should be modest.
Manufacturing output would be unaffected, while the weaker euro will help to lower U.K. CPI inflation in 2022.
- October's rise in retail sales volumes was driven solely by people buying Christmas presents earlier than usual.
- Consumers' confidence recovered in November, but still is below-average, and will drift down over the winter.
- A large minority of people remain fearful of Covid; rising cases likely will instil greater caution over the winter.
- The ONS' BIC survey suggests the recovery stalled in both October and November
- OpenTable figures show that the boom in dining out has faded in November.
- We expect quarter-over-quarter GDP growth to slow to 1.0% in Q4, from 1.5%, and below the consensus, 1.1%
- October's 4.2% rate of CPI inflation was well above the MPC's 3.9% forecast; such a large error margin is rare.
- The upside surprise came from the core, and will carry over to future months; April's peak looks set to top 5%.
- Mean-reversion in energy and goods prices, however, should ensure that CPI inflation dips below 2% in 2023.
- In one line: Above the MPC’s forecast again; a 5% peak lies ahead.
- U.K. exports in Q3 were 14% below their 2018 average, a larger shortfall than in any other G7 economy.
- It's not just services exports; U.K. goods exports are well below their pre-Covid level; Brexit is to blame.
- Several potential further headwinds loom, including the risk of further trade barriers from the EU.
- Energy prices likely were the key driver of higher CPI inflation in October, but the core rate probably rose too.
- Used car prices rocketed again, while data from the BRC point to a chunky rise in clothing prices.
- Hospitality firms probably raised prices in response to the VAT hike; the boost is uncertain but likely large.
- On balance, we still think the MPC won't act next month; Mr. Bailey hinted October's labour data may not suffice.
- The MPC's inflation forecasts seemingly support markets' view that rates will rise to 1.0% by the end of 2022...
- ...But they are based on implausible energy price figures; its spare capacity forecasts point to a lower rate path.
- The effective mortgage rate will be just 20bp or so higher at the end of 2022, if markets' Bank Rate view is right.
- The interest rate on bank deposits would rise by more, so households' net interest payments would fall, initially.
- The housing market, however, looks like the weak link; we expect house prices to flatline in H1 2022.
- Households continued in September to save more and borrow less than they did before Covid.
- The recovery in spending will continue only if households save less in response to falling real incomes...
- Households did this in 2016, but are less confident now, despite having a larger precautionary buffer.
- The near-term outlook for GDP has worsened, but 2022 looks a little brighter in the wake of the Budget.
- Higher energy prices mean we have revised up our forecast for CPI inflation in 2022 to 3.6%, from 3.4%.
- We now expect two rate hikes, not one, in the next 12 months, but still anticipate no change this week.
- The MPC's view the output gap has closed means it must counter plans for higher government spending.
- But the Committee can wait until 2022 to act; the recovery is faltering, and underlying inflation is not high.
- The MPC will see key jobs data if it waits until December; higher rates are coming, but not just yet.
- Households' medium-term inflation expectations fell by 0.1pp to 3.7% in October, according to YouGov/Citi.
- Nearly all the rise in expectations can be explained by current inflation rates; no sign of de-anchoring.
- Manufacturing output isn't that sensitive to energy prices; we continue to expect modest growth in Q4.
- Markets are pricing-in a 65bp rise in Bank Rate by March and expect the first hike to come next week...
- ...But falling consumer confidence, low pay settlements and rising Covid cases strengthen the case for patience.
- November is "live", but markets' conviction is too strong; potential swing voters on the MPC have been very
- This month's Stamp Duty change has left housing unscathed; we look for a 0.5% q/q rise in house prices in Q4.
- House prices, however, will flatline in H1 2022; two-year fixed rate mortgage rates will jump by 60bp in Q4...
- ...The squeeze on households' real income, as inflation rises and taxes increase, also will subdue the market.