25 Nov 2022 UK Monitor Why Do We Expect Unemployment to Rise Sooner than Official Forecasters?

Past recessions show a much shorter lag between falling GDP and employment than the OBR and BoE now expect.

Vacancy data likely provide false comfort; they didn't forewarn of declining employment in early 2008.

Survey measures of employment have fallen sharply; the big corporate financing shock points to layoffs.

Gabriella DickensU.K.

24 Nov 2022 UK Monitor PMI Data Still Point to a Recession and Intense Price Pressures

• S&P's survey points to another 0.2% q/q drop in GDP in Q4 and the likelihood of a faster decline in Q1.
• The employment index remained slightly above its long-run average, but it tends to lag the PMI.
• Output prices still are rising too fast for the MPC to tolerate, but leading indicators point to a slowing soon.

Gabriella DickensU.K.

16 Nov 2022 UK Monitor Stable Employment in Q3 Shouldn't Undermine Conviction in Future Falls

• Employment essentially held steady in Q3, despite the fall in GDP; vacancies have remained at a high level too.
• But the rise in corporate borrowing costs looks set to be sharp enough to spark a wave of redundancies next year.
• Wage growth was far too strong for the MPC too tolerate in September, but timelier data point to a slowdown.

Samuel Tombs (UK Economist)U.K.

12 Oct 2022 UK Monitor The Labour Market Won't Remain Tight for Much Longer

• Employment was broadly flat in Q3, but the recent jump in firms' borrowing costs signals a big fall ahead.
• Long-term sickness looks set to rise further, but government policies likely will boost the workforce in 2023.
• We expect the unemployment rate to peak at about 5.5%, easily high enough to subdue wage growth.

Samuel Tombs (UK Economist)U.K.

10 Oct 2022 UK Monitor August GDP and Labour Market Data to Point to Stagnation

• We look for a small 0.1% month-to-month rise in GDP
  in August; that’s probably the last rise for this year.
• The single-month measure of employment fell in June and July, but surveys signal modest growth in August.
• Recent wage indicators have painted a mixed picture; expect year-over-year growth to rise only modestly.

Samuel Tombs (UK Economist)U.K.

5 Oct 2022 UK Monitor The Outlook for Corporate Debt Costs is at least as Bad as for Mortgages

• Over three-quarters of firms’ bank loans are floating rate; interest payments will absorb 20% of profits soon.
• In total, firms’ financial assets are worth more than bank & bond debt, but they are mismatched between firms.
• The change in firms’ borrowing costs has been a good leading indicator of employment and capex in the past.

Samuel Tombs (UK Economist)U.K.

28 Sept 2022 UK Monitor Surveys Point to a Small Drop in GDP in Q3, but this is Just the Start

• PMI and confidence data for September suggest GDP edged down for a second consecutive quarter in Q3.
• The downturn will gather momentum, as borrowing costs for households and businesses soar.
• We now look for a 1.5% year-over-year decline in GDP in 2023, and CPI inflation not to return to 2% until 2025.

Samuel Tombs (UK Economist)U.K.

23 Sept 2022 UK Monitor MPC Likely to Stick to Another 50bp Hike in November, Despite Tax Cuts

• The improved near-term outlook for CPI inflation has left the MPC less anxious about second-round effects.
• The MPC is awaiting more details on fiscal policy; a 75bp hike in November can't be ruled out...
• ...But the proposed tax cuts will do little to boost GDP, and spending might be cut; we still expect a 50bp hike.

Samuel Tombs (UK Economist)U.K.

20 Sept 2022 UK Monitor August's Drop in Retail Sales Makes a 50bp Bank Rate Hike More Likely

• The drop in August’s retail sales volumes was below consensus, but almost matched our forecast.
• The weakness was broad based; consumers cut back on both essential and discretionary goods.
• The larger-than-consensus fall makes a 50bp increase in Bank Rate this week more likely than a 75bp hike.

Gabriella DickensU.K.

14 Sept 2022 UK Monitor Wage Growth Remains too High for the MPC, But that will Change in 2023

• Employment has stopped rising, but labour market slack hasn't accumulated, due to increasing inactivity.
• We expect labour demand to remain flat but the workforce to grow, as immigration and participation recover.
• For now, wage growth is too hot for the MPC, but building slack and falling CPI inflation will slow it in 2023.

Samuel Tombs (UK Economist)U.K.

12 Sept 2022 UK Monitor Labour Market and Retail Sales Data to Persuade the MPC to be Cautious

• Business surveys and vacancy data point to another negligible rise in payroll employees in August.
• Wage growth likely remained slightly too strong for the MPC, but probably didn't gain more momentum.
• BRC data point to a below-consensus fall in retail sales in August; the MPC won't up the hiking pace.

Samuel Tombs (UK Economist)U.K.

30 Aug 2022 UK Monitor CPI Inflation to Top 17% in January, if Energy Prices Now Hold Steady

• Futures prices indicate that the energy price cap will rise by a further 52% in January and 38% in April...
• ...Implying that energy will directly boost the headline rate of CPI inflation early next year by 11pp.
• Markets' bets on even faster rate hikes look misplaced; higher energy prices mean more labour market slack.

Samuel Tombs (UK Economist)U.K.

24 Aug 2022 UK Monitor Flash PMIs Suggest the Economy is Stagnant at Best

August’s PMIs suggest the recovery has petered out, with the manufacturing sector heading into recession.

Employment growth also has come off the boil, while price pressures mostly have continued to ease.

All this suggests the MPC have room to act with caution; a 50bp hike is not the done deal assumed by markets.

Samuel Tombs (UK Economist)U.K.

17 Aug 2022 UK Monitor Labour Market Slack will Continue to Build, Easing Wage Pressures

Growth in employment in the three months to June undershot the consensus by the most in nearly two years.

The workforce, by contrast, is finally picking up, assisted by a recovery in immigration, which will be maintained.

Vacancy and payroll employee data indicate labour demand is stagnating; unemployment will rise further.

Samuel Tombs (UK Economist)U.K.

11 Aug 2022 UK Monitor June Official Data to Confirm the Labour Market No Longer is Tightening

PAYE data, vacancy figures and business surveys all suggest employment growth slowed in June and July.

Labour supply, however, is picking up; the unemployment rate likely was marginally higher in Q2 than in Q1.

Wages likely continued to rise in June at a rate inconsistent with the inflation target, but probably didn't speed up.

Samuel Tombs (UK Economist)U.K.

9 Aug 2022 UK Monitor The Unemployment Rate will Rise Sooner than the MPC Expects

The MPC currently expects the unemployment rate to remain well below 4% until Q3 2023...

...But timely indicators suggest demand for labour already is cooling, just as supply is starting to recover.

We expect the unemployment rate to rise above 4% before year-end, keeping a lid on wages and rate hikes.

Samuel Tombs (UK Economist)U.K.

3 Aug 2022 UK Monitor Surging Mortgage Rates Point to an Outright Drop in House Prices

House purchase demand is falling quickly in response to the jump in mortgage rates and drop in real incomes.

New mortgage rates look set to rise further in Q3, greatly weighing on approvals.

A contraction in supply, however, will prevent a slump in prices; we still forecast a modest 2% decline in H2 2022.

Gabriella DickensU.K.

25 July 2022 UK Monitor PMI Data Imply no Need for the MPC to act "Forcefully" Next Week

PMI data for July show that the recovery in GDP has nearly ground to a halt and inventory is piling up.

Employment growth slowed to a 15-month low, while the pace of input and output price rises eased materially.

On balance, the latest data imply the MPC won't act "forcefully"; market pricing for August is still too high.

Samuel Tombs (UK Economist)U.K.

20 July 2022 Reviving Workforce Growth Eases the Pressure for Large Rate Hikes

The Governor emphasised at Mansion House that the drop in the workforce has been a key driver of rate rises.

So its 0.8% 3m/3m rise in May, the largest since 1984, should ensure the MPC sticks to a 25bp hike in August.

The workforce has scope to rebound further, while vacancy and survey data imply job growth will slow.

Samuel Tombs (UK Economist)U.K.

13 July 2022 Expect More Signs of a Loosening Labour Market Next Week

We think employment grew at a steady 0.5% threemonth-on-three-month pace in May.

But expect even faster growth in the workforce to mean that the unemployment rate edged up again.

Surveys suggest wage growth had no more momentum in May than in prior months.

Gabriella DickensU.K.