- We think CPI inflation leapt to 3.1% in August, from 2.0% in July, above the 2.9% consensus.
- Core inflation likely jumped on the anniversary of the Eat Out to Help Out Scheme...
- ...But it also probably was boosted by abnormally large increases in used car and other goods prices.
- Surging Covid-19 cases largely were responsible for the near-stagnation of GDP in July.
- The virus no longer is driving labour shortages, but many remain fearful and will spend less if it picks up.
- We still look for quarter-on-quarter growth in 1.5% in Q3, half the rate expected by the MPC.
- Markets still expect the MPC to hike rates in Q2 2022, despite surprise plans to lift national insurance in April.
- The tax hike will defer a full recovery in households' spending to the second half of next year.
- The plans imply the Treasury does not expect the OBR to turn upbeat on the medium-term economic outlook.
- GDP likely held steady in July, falling short of the consensus and the level implied by the BoE's Q3 forecast.
- Surging Covid cases depressed output in the distribution, food services and education sectors.
- A decline in new Covid-19 vaccinations probably led to a reduction in output in the health sector too.
- From now on, the U.K. Monitor on the first Monday of each month will summarise recent forecast changes.
- We now think GDP flatlined in July, so our Q3 fore- cast, 1.5% q/q, is well below the consensus, 2.4%.
- Our 3.7% forecast for the CPI inflation in Q4—probably the peak—is below the MPC's new 4.0% estimate.
- The U.K. economy was hit harder by the pandemic and has struggled to catch up to the Eurozone since.
- Britain's faster rollout of vaccines led many to assume that it would close the gap with the Eurozone in Q3...
- ...But near-real-time indicators imply Q3 GDP growth actually was stronger in the Eurozone than the U.K.
- Shortages of workers and, to a lesser extent, materials, should ease in Q4, enabling output to rise.
- Businesses plan to invest more over the coming quarters, and can continue to adapt to Covid-19.
- Public sector output will rise too; school attendance will pick up and waiting lists will keep hospitals busy.
- Households' stock of excess savings rose in July to 8.3% of 2020 GDP, after another cautious month.
- The proportion of credit card debt repaid rose to a record high; ad hoc mortgage payments were high too.
- Businesses aren't borrowing either, though capex still looks set to recover from rock-bottom levels in 2022.
- Businesses are reporting low inventory in relation to demand, but shops remain well-stocked for now.
- Labour shortages should fade now that self-isolation rules have eased and the holiday season is nearly over.
- The workforce, however, is 2.2% below its pre-Covid trend; migration and participation won't fully recover.
- August's sharp fall in the composite PMI brings it in line with other indicators, which weakened in July.
- In fact, GDP likely rose at a faster rate in August than July, though it won't match its peak until year-end.
- Output prices reportedly rose at a slower pace in August, tentatively supporting the "transitory" take.
- The Delta variant is to blame for July's fall in retail sales, not the rain, zeal for dining out, or alleged shortages.
- Surveys show households were less willing to visit both shops and services providers last month.
- Retailers are unlikely to benefit from any future recovery in consumers' confidence.
- The pace of month-to-month increases in consumer prices slowed in July; the re-opening surge is over.
- CPI inflation still is set to rise sharply, but the peak will be a bit below the 4% rate expected by the MPC...
- ...The MPC's food and energy price assumptions are too high, while goods inflation will fall swiftly next year.
The U.K. economy was the G7's straggler for a fifth consecutive quarter, despite the rebound in Q2.
GDP will barely rise in July; June's surges in output in the health and advertising sector will reverse...
...while data from OpenTable and the BRC point to a step down in consumers' spending last month.
Car demand surged in Q2, as easing Covid-19 restrictions boosted consumers' confidence.
But shortages of key components have limited the supply of new cars; used car sales have surged.
Used car sales look set to remain elevated this year, pushing up prices.
By the autumn, vaccination rates no longer will be higher in the U.K. than other advanced economies.
The chances of U.S. and U.K. rates rising in lockstep are remote; the U.S. recovery is far more advanced.
U.K. political risks are low now, but next year investors will start to weigh the risks from the 2024 election.
Covid-19 cases likely will pick up in September, as schools return and building ventilation declines.
Business closures in Q4 aren't likely, but households will remain cautious, delaying a full recovery.
In the event of a new variant and lockdown, we think the MPC would cut rates to -0.25%, despite 4% inflation.
The MPC's forecasts imply markets' expectations for future rate hikes are about right...
...But the risks to the MPC's economic forecasts now are skewed firmly to the downside.
We now expect the first rate hike in Q2 2023, slightly earlier than before, with QE wind-down coming later.
The proportion of staff furloughed fell to 5.7% at the end of June, from 7.5% a month earlier...
...But surveys point to only a marginal fall in early July, and still high usage in fully recovered sectors.
Firms likely won't fully relinquish recent productivity gains; the employment rate will drop back in Q4.
The recovery in the manufacturing sector slowed in July, probably to a complete standstill.
Output should pick up in the autumn, amid easing supply constraints and robust restocking demand...
...But we see little chance of long-term reshoring; Brexit is another barrier to a sustained recovery.