- 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.
Samuel Tombs (UK Economist)U.K.
- 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.
Samuel Tombs (UK Economist)U.K.
- We think GDP merely held steady in September, undershooting the consensus and the BoE's forecast.
- Data from other countries show that industrial pro- duction was impeded by component shortages.
- Car sales fell sharply in September, while the "stay- cationing" boost to the hospitality sector ended.
Samuel Tombs (UK Economist)U.K.
- 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.
Samuel Tombs (UK Economist)U.K.
- Budget announcements, including the jump in National Living Wage, will support earnings growth next year...
- ...but higher taxes and inflation suggest real take home pay will fall by 1.5%, the most since 2011.
- This is one key reason we expect the MPC will hike Bank Rate by less than markets currently expect.
Samuel Tombs (UK Economist)U.K.
- 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
Samuel Tombs (UK Economist)U.K.
- 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.
Samuel Tombs (UK Economist)U.K.
- The labour market continued to tighten in Q3, but employment and hours still were below their potential.
- Labour supply likely has increased much more than labour demand in Q4, now that the CJRS has ended.
- Unit wage costs were kept in check by a productivity rebound; rising labour supply will cool wage growth in Q4.
Samuel Tombs (UK Economist)U.K.
- The MPC won't hike Bank Rate until it has assessed the impact of the closure of the furlough scheme.
- It will have October's Labour Force Survey data to hand at its meeting on December 16...
- ...But that wouldn't allow time to prepare the public, as usual; February is the earliest practical lift-off date.
Samuel Tombs (UK Economist)U.K.
- The ONS estimates that underlying year-over-year growth in wages was between 3.6% and 5.1% in July...
- ...We expect an increase in labour market slack, post-furlough, to push this rate down to about 3.2%.
- Employers will pass on higher NICs rates to staff, while public sector pay will rise only modestly next year.
Samuel Tombs (UK Economist)U.K.
- Public borrowing in August was only slightly below the OBR's forecast; interest payments are picking up.
- We think the OBR will revise its long-term "scarring" estimate only to 2.5%, from 3.0% previously...
- ...The workforce has continued to contract this year, confounding the OBR's hopes of a rebound.
Samuel Tombs (UK Economist)U.K.
- August's drop in retail sales was broad-based; the recovery in overall spending now is sluggish.
- Real disposable income will drop by 1.5% q/q in Q4, as employment falls, inflation soars, and benefits are cut.
- RHDI will recover in Q1, but then flatline in Q2, in response to the rise in employees' NICs rates.
Samuel Tombs (UK Economist)U.K.
- Payroll employee numbers returned in August to their pre-Covid peak, but will dip in Q4, after furlough ends.
- We expect the unemployment rate to rise to 5.0% in Q4, from 4.5% in Q3; slack within firms will build too.
- Three-month-on-three-month annualised growth in wages fell to 3.2% in July; slack will keep it in check.
Samuel Tombs (UK Economist)U.K.
- The margin by which public borrowing undershoots the OBR's forecast will narrow over coming months...
- ...Interest payments will soar, while GDP growth in Q3 and Q4 will fall short of the OBR's expectations.
- The OBR's scarring judgement looks sound; productivity and participation have been lower than expected.
Samuel Tombs (UK Economist)U.K.
- Employee numbers have rebounded since the spring, but total employment is lagging behind.
- Vacancies are high, but are concentrated in different sectors to those which will see post-furlough layoffs.
- High inflation and 4-to-5% unemployment didn't lift wage growth in 2017, and probably won't this time.
Samuel Tombs (UK Economist)U.K.
We look for above-consensus three-month-on- three-month growth in employment of 125K in June.
June's PAYE data were very strong, while a cohort reporting a low employment rate left the sample.
Year-over-year growth in wages likely rose further, but the underlying trend isn't troubling for the MPC.
Samuel Tombs (UK Economist)U.K.
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.
Samuel Tombs (UK Economist)U.K.
The larger-than-consensus fall in the composite PMI adds to evidence that the recovery is slowing.
The disruption caused by Covid-19 cases is only part of the story; a weaker underlying picture is emerging.
Prices still are rising sharply, but there are some early signs that the upward pressure is easing.
Samuel Tombs (UK Economist)U.K.
We continue to think that the government will need to press ahead with its planned fiscal tightening over the next two years, if it wants to ensure that borrowing drops to 3% of GDP in the mid-2020s.
Samuel Tombs (UK Economist)U.K.
