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- Continued momentum in core price rises was partly to blame for the upside inflation surprise in October.
- The recent fall in shipping costs and slowing in producer price rises, however, points to a better trend soon.
- Recessions reliably crush domestically-generated inflation; we still see a sub-2% headline rate in 2024.
- We look for an above-consensus jump in CPI inflation to 10.9% in October, from 10.2% in September.
- Food prices continued to rise quickly and energy prices soared; core CPI inflation likely remained high too.
- The BRC’s non-food shop prices index leapt; services inflation likely was supported by education and rents.
- The U-turn in the direction of fiscal policy has offset the better news on the outlook for borrowing costs.
- Plausible assumptions suggest Autumn Statement measures will inflict a 0.3% blow to GDP in 2023/24.
- A halving of energy price support for households in April would raise the path for CPI inflation by about 2.0pp.
- The MPC’s forecasts suggest it needs to raise Bank Rate only by a further 50bp to hit the 2% inflation target.
- The required tightening could be even smaller, depending on the size and timing of upcoming fiscal measures.
- The MPC, however, still is nervous about upside inflation risks, so we still expect Bank Rate to rise to 4.0%.
- We expect the MPC to hike Bank Rate by 75bp next week, but to signal smaller hikes at future meetings.
- On the face of it, its new forecast for inflation will endorse the path for Bank Rate expected by markets...
- ...But it won’t incorporate the upcoming fiscal tightening; expect the MPC to emphasise the downside risks.
- September’s data showed no let up in the rate of core price rises; the MPC will continue to hike rates quickly.
- Core CPI inflation, however, will ease soon; firms have too much stock, and demand is about to plunge.
- The outlook for energy CPI inflation is unclear again, but rising unemployment will let the MPC focus on the core.
- We’ll need to raise our forecast for CPI inflation in Q2 2023 by 5pp, if Ofgem’s unsubsidised price cap returns.
- One option for the government is to maintain grants for low income households; these wouldn’t lower the CPI.
- The MPC will worry more about demand than inflation expectations; unemployment will have risen by April.
- PMI and confidence data for September suggest GDP edged down for a second consecutive quarter in Q3.
- The downturn will gather momentum, as borrowing costs for households and businesses soar.
- We now look for a 1.5% year-over-year decline in GDP in 2023, and CPI inflation not to return to 2% until 2025.
- A recession now is all but inevitable; the key questionis how the pain will be distributed.
- Hiking Bank Rate to 6% would crush domestically-generated inflation; mortgage defaults would soar.
- Hiking more slowly would depress sterling and boost imported inflation, but is the lesser evil for the MPC.
- Tax cuts which disproportionately benefit the top 1% of earners will do little to boost demand.
- Most households are worse off, because the associated depreciation of sterling will raise the price level by 1.5%.
- Mr. Kwarteng likely will impose tough spending limits in the Budget, to try to reverse the jump in gilt yields.
- The improved near-term outlook for CPI inflation has left the MPC less anxious about second-round effects.
- The MPC is awaiting more details on fiscal policy; a 75bp hike in November can't be ruled out...
- ...But the proposed tax cuts will do little to boost GDP, and spending might be cut; we still expect a 50bp hike.
- Public borrowing has tracked the OBR's forecast this year, but government spending now will soar.
- Loans to energy suppliers, to limit energy price rises, will boost the cash requirement, but not borrowing.
- We look for a gross financing requirement of about £325B in 2023/24, but the outlook is very uncertain.
- The effective interest rate for all mortgages has risen only slowly to date, but now looks set to soar...
- ...As a rising number of borrowers refinance, and as lenders respond to the further jump in risk-free rates.
- Expect a 1pp disposable income hit in 2023 if Bank Rate tops 4%, or a 0.7pp drag if Bank Rate tracks our forecast.
- We think the MPC will raise Bank Rate by 50bp next week, despite other central banks rushing ahead...
- ...Q3 GDP is set to undershoot the MPC’s latest forecast, while the inflation outlook has improved greatly.
- Proposed tax cuts are too small to move the inflation needle, and likely will be partly funded by spending cuts.
- The month-to-month change in the August core CPI exceeded its seasonal norm by the least this year.
- The recent decline in commodity prices suggests core CPI inflation will fall sharply next year.
- Services inflation will be stickier, but the current support from energy price rises and VAT changes will fade.
- Employment has stopped rising, but labour market slack hasn't accumulated, due to increasing inactivity.
- We expect labour demand to remain flat but the workforce to grow, as immigration and participation recover.
- For now, wage growth is too hot for the MPC, but building slack and falling CPI inflation will slow it in 2023.
- Business surveys and vacancy data point to another negligible rise in payroll employees in August.
- Wage growth likely remained slightly too strong for the MPC, but probably didn't gain more momentum.
- BRC data point to a below-consensus fall in retail sales in August; the MPC won't up the hiking pace.
- The average household will spend less on energy over the next six months than during the last six.
- So a winter recession now looks unlikely, and the MPC can return to focussing on core CPI inflation.
- Fiscal policy will stabilise demand, not lift it; job market slack still looks set to emerge, limiting rate hikes.
- CPI inflation likely fell to 9.9% in August, from 10.1% in
July, returning to the level forecast by the MPC.
- A slump in motor fuel CPI inflation likely dominated the further pick-up in food inflation.
- BRC data show the pace of core goods price rises eased in August; July's large jump in rents won't be repeated.
- Ms. Truss has been tight-lipped about her plans, but a
trade body plan to freeze prices is gaining traction.
- If implemented, CPI inflation will return to the 2% target in 2023, easing the pressure for further big rate hikes.
- Firms need help too, though we think Ms. Truss will cut business rates and provide grants, not reduce VAT.