Q1 GDP grew faster in the U.K. than overseas because consumers were shielded from higher energy prices.
Monthly data show growth slowed during Q1; falling retail sales were more than just a consumer rotation.
Falling real incomes, declining health spending and the extra bank holiday will reduce GDP in Q2.
Samuel Tombs (UK Economist)U.K.
The composite PMI points to solid quarter-on-quarter GDP growth of 0.7% in Q2, despite falling in April.
The PMI, however, likely is too upbeat; it excludes government expenditure and retail sales, which are falling.
It might also be too strong when turnover is being lifted by price rises; we still expect GDP to drop in Q2.
Gabriella DickensU.K.
March's retail sales figures were a wake-up call for investors; households are struggling to tread water.
Consumers' confidence weakened further in April and now is only a touch above its all-time low.
We still expect a recession to be avoided, but the risk will weigh on the MPC's forthcoming decisions.
Samuel Tombs (UK Economist)U.K.
- The latest data suggest that GDP increased by 0.9% in Q1, despite the Omicron hit at the turn of the year...
- ...But lower health spending, an extra bank holiday and falling real incomes will weigh on the recovery in Q2.
- The MPC, therefore, likely will refrain from raising Bank Rate later this year, after a final hike to 1.00% in May.
Samuel Tombs (UK Economist)U.K.
- A recession has ensued on four of the five past times when consumers' confidence is as low as it is currently.
- The outlook for households' real disposable income is ghastly; we now expect a 2.5% y/y drop in 2022...
- ...But if employment keeps rising, people should be will- ing to draw on savings to maintain their real spending.
Samuel Tombs (UK Economist)U.K.
- This week's surge in energy prices, if sustained, will boost the CPI by an extra 1.5 percentage points.
- Households' real disposable incomes now are set to fall by about 2.2% this year, the most since WW2.
- Below-trend GDP growth lies ahead, which will obviate the need for much higher interest rates.
Samuel Tombs (UK Economist)U.K.
- We think that year-over-year growth in the workforce will pick up to 1.0% by the end of 2022...
- ...Driven by the reversal of half of the rise in inactivity since early 2020, and a recovery in immigration.
- The number of hours workers are willing to supply also will rise in response to the drop in real wages.
Samuel Tombs (UK Economist)U.K.
- Rising debt interest payments explain why January's surplus was smaller than the OBR forecast.
- We expect the OBR to revise up its forecast for public borrowing in 2022/23 to about £97B, from £83B.
- Mr. Sunak still will meet his fiscal rules, but will preserve his remaining headroom until nearer the next election.
Samuel Tombs (UK Economist)U.K.
- U.K. GDP nearly reached its pre-Covid level in Q4, but the recovery still underwhelms by G7 standards.
- The recovery also has been flattered by huge public spending; private sector GDP was 3.4% below its peak.
- Exports remain the economy's Achilles heel; they have underperformed since Q1 2021, largely due to Brexit.
Samuel Tombs (UK Economist)U.K.
- Business surveys point to substantial damage to GDP in December from Omicron; hospitality was hit hard...
- ...But surging Test & Trace and vaccine activities likely boosted month-to-month growth in GDP by 0.7pp.
- We look for a 0.6% month-to-month drop in GDP, which likely will not cause the MPC to blink.
Samuel Tombs (UK Economist)U.K.
- Investors think the MPC will hike Bank Rate by a further 100bp this year, leaving it at 1.5% by year-end.
- But the MPC still expects only "modest" further hikes; Bailey was clear: "do not get carried away".
- The MPC's forecasts for CPI inflation imply rates need to rise only 35bp more to return it to the 2% target.
Samuel Tombs and Gabriella DickensU.K.
- The MPC's likely decision next week to raise Bank Rate to 0.50% should mark the end of QE reinvestments.
- The APF will shrink by £25B in March; fallout, however, will be limited, as markets have known for some time.
- Our working assumption remains the BoE will sell £10B of gilts per quarter when Bank Rate reaches 1%.
Samuel Tombs (UK Economist)U.K.
- Retail sales were hit in December by a double whammy of earlier-than-usual gift buying and Omicron.
- Sales, however, will be no higher in Q1 and Q2 than in Q4, given the pressure on households' real incomes.
- Households have huge excess savings, but low confidence suggests they won't draw on them much soon.
Samuel Tombs (UK Economist)U.K.
- The Tories now trail Labour by 10pp in the polls; a no-confidence vote in Johnson is a growing possibility.
- Markets probably would prefer a more predictable successor who had a less combative Brexit stance...
- ...But the gap between the Tories and Labour on economic policy has narrowed.
Samuel Tombs (UK Economist)U.K.
- GDP surpassed its pre-Covid level in November, albeit with support from some unsustainable sources.
- Omicron has temporarily set the economy back, but GDP should return to November's level by March.
- Thereafter, however, GDP growth likely will be slow, due to the squeeze on households' disposable incomes.
Samuel Tombs (UK Economist)U.K.
- CPI inflation probably was unchanged at 5.1% in December, giving the MPC some breathing space.
- Pick-ups in food and used car price inflation likely were offset by falls in the tobacco and clothing components.
- The seasonal surge in plane ticket prices will boost the CPI less than usual, because its weight has shrunk.
Samuel Tombs (UK Economist)U.K.
- We think that GDP increased by about 0.6% month-to-month in November, above the 0.4% consensus.
- Easing supply-chain blockages seem to have facilitat- ed pick-ups in manufacturing and construction output.
- Growth in services output was supported by increas- es in retail sales, transport usage and vaccinations.
Samuel Tombs (UK Economist)U.K.
- The default tariff energy price cap looks set to rise by 47% in April, pushing up CPI inflation to 6.2%.
- The rise will be larger, if suppliers are immediately compensated for acquiring failed competitors' customers.
- Removing VAT would limit the inflation peak to 6.0%; a supplier loan scheme could have a bigger impact.
Samuel Tombs (UK Economist)U.K.
