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- Borrowing undershot the consensus in October due to the timing and under-recording of energy support.
- The OBR's GDP forecasts assume an implausibly low saving rate and too rapid productivity growth...
- ...Plans for very tight public spending won't be stuck to; borrowing eventually will settle at about 4% of GDP.
- Retail sales might hold steady in Q4, given the boost to disposable incomes from reversing the NI hike...
- ...But they likely will fall again in 2023, as real incomes are hit hard by the rapid withdrawal of fiscal support.
- A risk premium no longer is priced-in to gilts and sterling, but new strains might emerge if energy prices surge.
- Most of the spending cuts and tax rises announced by Mr. Hunt do not kick-in until after the next election...
- ...But the rapid withdrawal of energy price support next year will ensure that the economy remains in recession.
- Mr. Hunt has less fiscal headroom than his predecessors; further adverse shocks will be met with extra cuts.
- We look for an above-consensus jump in CPI inflation to 10.9% in October, from 10.2% in September.
- Food prices continued to rise quickly and energy prices soared; core CPI inflation likely remained high too.
- The BRC’s non-food shop prices index leapt; services inflation likely was supported by education and rents.
- The U-turn in the direction of fiscal policy has offset the better news on the outlook for borrowing costs.
- Plausible assumptions suggest Autumn Statement measures will inflict a 0.3% blow to GDP in 2023/24.
- A halving of energy price support for households in April would raise the path for CPI inflation by about 2.0pp.
- Rising mortgage rates, energy prices and unemploy- ment will all drain the life from the economy next year.
- Real government spending will be strangled in each of the next three years, in order to get the debt ratio falling.
- A further rise in long-term sickness will be another un- welcome shock; no escaping a prolonged recession.
- Wholesale prices imply it would cost £65B to maintain the Energy Price Guarantee from Q2 until Q3 2024.
- Simply removing it, however, would inflict a near-3% income blow on households in April; that's not realistic.
- Scrapping standing charges would limit prices, cap the Treasury's exposure, and encourage energy efficiency.
- September’s data showed no let up in the rate of core price rises; the MPC will continue to hike rates quickly.
- Core CPI inflation, however, will ease soon; firms have too much stock, and demand is about to plunge.
- The outlook for energy CPI inflation is unclear again, but rising unemployment will let the MPC focus on the core.
- We’ll need to raise our forecast for CPI inflation in Q2 2023 by 5pp, if Ofgem’s unsubsidised price cap returns.
- One option for the government is to maintain grants for low income households; these wouldn’t lower the CPI.
- The MPC will worry more about demand than inflation expectations; unemployment will have risen by April.
- We now look for a 1.5% year-over-year drop in GDP in 2023, worse than our prior forecast for a 1.2% decline.
- The Energy Price Guarantee has shored up real in- comes, but the tax cuts are counterproductive, net...
- ...The hit from the resulting drop in sterling and rise in mortgage rates will outweigh the direct fiscal boost.
- 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.
- 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.
- Public borrowing has tracked the OBR's forecast this year, but government spending now will soar.
- Loans to energy suppliers, to limit energy price rises, will boost the cash requirement, but not borrowing.
- We look for a gross financing requirement of about £325B in 2023/24, but the outlook is very uncertain.
- 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.
- The month-to-month change in the August core CPI exceeded its seasonal norm by the least this year.
- The recent decline in commodity prices suggests core CPI inflation will fall sharply next year.
- Services inflation will be stickier, but the current support from energy price rises and VAT changes will fade.
- June's 0.2% month-to-month rise in GDP was due to the unwinding of the Jubilee hit; the trend is flat.
- We’re pencilling-in a 0.2pp hit to September GDP from the extra public holiday, but can’t rule out a bigger fall.
- Even excluding the impact of the Queen’s funeral, Q3 GDP looks set to undershoot the MPC’s forecast.
- The average household will spend less on energy over the next six months than during the last six.
- So a winter recession now looks unlikely, and the MPC can return to focussing on core CPI inflation.
- Fiscal policy will stabilise demand, not lift it; job market slack still looks set to emerge, limiting rate hikes.
- CPI inflation likely fell to 9.9% in August, from 10.1% in
July, returning to the level forecast by the MPC.
- A slump in motor fuel CPI inflation likely dominated the further pick-up in food inflation.
- BRC data show the pace of core goods price rises eased in August; July's large jump in rents won't be repeated.
- We look for a modest 0.3% month-to-month rise in July
GDP, leaving it only 0.1% up from three months earlier.
- The composite PMI has pointed to stronger growth, but it excludes the distribution and health sectors.
- Revised GDP estimates later this month likely will show that economic activity still is below its pre-Covid peak.
- Ms. Truss has been tight-lipped about her plans, but a
trade body plan to freeze prices is gaining traction.
- If implemented, CPI inflation will return to the 2% target in 2023, easing the pressure for further big rate hikes.
- Firms need help too, though we think Ms. Truss will cut business rates and provide grants, not reduce VAT.