Pantheon Macroeconomics
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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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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