24 June 2022 June's Stable PMI Provides Little Reassurance on Q2 GDP

The composite PMI held steady at 53.1 in June, but it has been misleadingly upbeat in recent months.

It excludes the retail and public sectors, both of which will drag on quarter-on-quarter GDP growth in Q2.

We still forecast a 0.7% q/q drop in Q2 GDP, and only a 25bp increase in Bank Rate in August.

Gabriella DickensU.K.

22 June 2022 New Estimates of the Distribution of Households' "Excess Savings"

Estimates of the distribution of savings can be derived by reconciling data from a few ONS surveys.

Our calculations suggest households in the top 10% of the income distribution hold 25% of the excess savings.

The current wave of rail strikes do not meaningfully increase the risk of a recession this year.

Samuel Tombs (UK Economist)U.K.

15 June 2022 Stable Wage Growth and a Reviving Workforce will Cheer the MPC

Year-over-year growth in private-sector wages slowed to 4.7% in April, slightly below the MPC’s 4.8% forecast.

The job market no longer is tightening, as the workforce recovers and growth in employment starts to slow.

We still expect the workforce to recover further, anchoring wage growth and easing the pressure for rate hikes.

Samuel Tombs (UK Economist)U.K.

8 June 2022 Signs of a Slowdown will Restrain the MPC to a 25bp Hike Next Week

The fall in May’s composite PMI to a 15-month low is a clear sign that growth is faltering as real incomes drop.

Retail and car sales also have been weak; we expect a quarter-over-quarter drop in GDP in Q2 of about 0.5%.

May’s PMI makes it more likely the MPC will hike by just 25bp this month; markets' expectations are too high.

Gabriella DickensU.K.

6 June 2022 Forecast Review: Two More Bank Rate Hikes in 2022?

The additional fiscal support means we expect a smaller 1.5% fall in real incomes in 2022, compared to 2.5%.

We have revised up our forecast for GDP in Q3 and Q4 as a result; but a recession still cannot be ruled out.

We now expect Bank Rate to top out at 1.50% this year, but we still think markets' expectations are wild.

Samuel Tombs (UK Economist)U.K.

25 May 2022 The Sharp Decline in the PMI Makes a Pause from the MPC Even More Likely

The PMI points to GDP flatlining in Q2, but a fall is more likely, given the plunge in government Covid spending.

The MPC shouldn't take comfort from the resilience of the employment index; it lags changes in the PMI.

Many firms still are hiking prices, but the number absorbing cost rises, due to faltering demand, is growing.

Samuel Tombs (UK Economist)U.K.

18 May 2022 The Latest Wage Growth Figures Won't Make the MPC Panic

• Average wages in Q1 were boosted by bonuses; ex-bonus growth has merely matched the MPC’s forecast. 
• The sharp rise in average hours has boosted weekly wages too; underlying pay pressures are manageable.
• We expect the labour market to stop tightening soon, as both the participation rate and immigration rise.

Samuel Tombs (UK Economist)U.K.

12 May 2022 Negligible Employment Growth in Q1, Despite Strong Surveys?

The LFS measure of employment was essentially unchanged in Q1, despite the strength implied by surveys.

But the unemployment rate probably fell to a 47-year low of 3.7%, due to a contraction in the workforce.

Headline wage growth likely edged up, but remained well below CPI inflation; this gap will persist.

Gabriella DickensU.K.

26 Apr 2022 The PMI Turned Down in April, but is Still too Upbeat on Q2 GDP Growth

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.

25 Apr 2022 Consumers Must Draw on Savings Soon for a Recession to be Averted

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.

22 Apr 2022 Which of the Conflicting Indicators of Employment Should Be Believed?

The upward trend in the PAYE measure of employees is more plausible than the flat trend presented by the LFS.

Very strong survey indicators might reflect rising average hours and likely are insensitive to rising quits.

Employment growth looks set to slow from Q2, due to the rise in NICs and weaker demand.

Gabriella DickensU.K.

13 Apr 2022 A Recovery in the Workforce will Limit Wage Pressures in 2022

Employment started to rise again in the three months to February, having fallen in December and January.

The workforce should start to recover this year, reflecting a decline in inactivity and a rise in immigration.

Alongside slower labour demand growth this should mean wages continue to rise more slowly than prices.

Samuel Tombs (UK Economist)U.K.

7 Apr 2022 February Data to Show the Recovery in Employment Is Back on Track

We look for a three-month-on-three-month rise in employment of about 30K in February.

Another cohort with a high employment rate left the sample, but surveys signal solid underlying momentum.

The PAYE measure of median pay and settlements data, however, suggest wage growth stayed subdued.

Gabriella DickensU.K.

30 Mar 2022 Households Still Aren't Drawing on Savings, But Borrowing is Picking Up

• Slowing money supply growth and households' continued reluctance to deplete savings are worrying signs...
• ...But real expenditure could still rise this year if the recovery in unsecured borrowing gathers momentum.
• Mortgage approvals have further to fall this year, but remortgaging activity should remain strong.

Samuel Tombs (UK Economist)U.K.

28 Mar 2022 Does the Plunge in Confidence Signal an Imminent Recession?

• 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.

16 Mar 2022 The Workforce will Recover this Year, Keeping Wage Pressures in Check

• Employment is trending up gradually, not falling as the LFS data imply or surging as the PAYE figures indicate.
• Growth in the workforce should rise this year, as inactivity declines and immigration recovers...
• ...This will slow the tightening of the labour market and ensure wages continue to rise more slowly than prices.

Samuel Tombs (UK Economist)U.K.

24 Feb 2022 Labour Supply will Pick Up This Year, Keeping Wage Pressures in Check

• 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.

22 Feb 2022 The PMI Points to a Swift Recovery from Omicron and Solid Q1 Growth

• Markit's composite PMI points to brisk GDP growth in Q1; the Omicron hit has faded quickly.
• Other indicators, however, including the ONS' BIC survey, are less upbeat, so we expect 0.6% q/q growth.
• Output prices in the manufacturing and services sec- tor are still surging; a March rate hike is a done deal.

Samuel Tombs (UK Economist)U.K.

21 Feb 2022 The Recovery in Households' Spending is Starting to Flag

• Retail sales in January were still 0.5% below their Q4 average, despite rising by nearly 2% from December.
• Omicron weighed on sales at the start of the month, but the real income squeeze also is becoming a factor.
• Households' real spending will rise further, as savings are drawn upon, but retailers don't stand to benefit.

Samuel Tombs (UK Economist)U.K.

16 Feb 2022 Labour Market Data Suggest the MPC Needn't Hike Aggressively

• The labour market is tight on every measure, but employment growth is slowing and wages aren't soaring.
• The first estimate of month-to-month growth in employee numbers in January was the lowest since April.
• Wages will be supported by low unemployment, but undermined by higher taxes and slowing job moves.

Samuel Tombs (UK Economist)U.K.