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- 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.
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.
- Rising interest payments are slowing the rate that public borrowing is falling.
- Fiscal headroom probably will be just half that assumed in the October Budget…
- …But Mr. Sunak still will have a free hand in signing off pre-election tax cuts in 2023.
- MPC members Bailey and Pill are sitting on the fence, despite last week's upside data surprises.
- In a weekend paper interview, the Governor highlighted the public sector's role in driving the recovery.
- We put the odds of a December rate hike at 60%, well below the 80-to-90% range priced by markets.
- 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.
- The 0.6% m/m rise in payroll employee numbers in October implies unemployment didn't rise post-furlough...
- ...But the drop in median pay in October suggests many furloughed staff have returned only part-time.
- Year-over-year growth in wages continued to slow in September; no sign of a wage-price spiral forming.
- In one line: Payroll data suggest unemployment hasn’t risen post-furlough.
- 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.
- U.K. GDP was 2.1% below its Q4 2019 level in Q3, exceeding the shortfalls seen in other G7 counties.
- Households have continued to spend more cautiously than those abroad; high virus levels are partly to blame.
- Brexit also has contributed to the continued underper- formance; exports were 17% below their 2019 average.
- In one line: Demand remaining strong, despite the stamp duty changes.
- Payroll employee numbers likely increased again in October, but not quite as strongly as in Q3.
- The data, however, will not gauge underemployment; October's LFS data, released in December, remain key.
- The recent drop in Covid-19 cases has largely been driven by school holidays; expect a renewed rise soon.
- Nearly 4% of all staff still were furloughed in September, yet redundancies appear to have remained low.
- Involuntarily part-time working, however, likely became much more widespread in Q4.
- October's labour market data will be partial and might not offset concerns about the recovery's strength.
- 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 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.
- The Chancellor spent only about half of the windfall stemming from the OBR's rosier economic forecasts...
- ...In order to build scope to cut taxes before the next election, while still meeting his new fiscal targets.
- The OBR's new GDP forecasts are too upbeat, while its debt interest forecast is too low, but this won't matter.
- The MPC will stop reinvestments in Q1 and start selling gilts in Q4 2022, if markets are right about rates.
- The impact of asset sales is unknown and the MPC wants them to be on auto pilot, so they will be cautious.
- Gilt sales of £10B per quarter would balance creating future stimulus space with keeping markets steady.
- 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
- The OBR likely will revise smaller its "scarring" estimate only to 2.5% of GDP, from 3.0% previously.
- The resulting uplift to future tax revenues will be offset by higher projections for interest payments.
- Mr. Sunak will have little, if any, headroom in meeting his target for a balanced current budget in three years' time.
- Are you sure Governor Bailey said something new on Sunday? Governor Bailey thought not.
- The statement "we will have to act" was qualified; medium-term inflation expectations need to be worrying.
- Confidence has fallen in response to rising inflation expectations; workers don't expect wages to keep pace.
- CPI inflation likely was unchanged in September from August's 3.2% rate.
- Used car prices have surged again, while surveys point to retailers increasing prices faster than usual...
- ...But motor fuel prices rose only slightly, and accom- modation and food services inflation likely fell back.