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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.
- 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.
- 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.
- In one line: Wage growth is near its peak.
- The U.K. is the only G7 country in which GDP fell in Q3
and has never recovered to its pre-Covid peak.
- Households’ real spending will keep falling until the end of 2023, as fiscal and monetary headwinds intensify.
- Higher interest rates will weigh on business investment and trigger a sharp downturn in residential investment.
- In one line: Contraction makes the U.K. a global outlier.
- The construction sector continued to recover in Q3, as supply constraints and labour shortages eased...
- ...But we doubt it will defy gravity for long, given the surge in borrowing costs and the looming fiscal squeeze.
- Given the pro-cyclical nature of construction output, we expect it to fall by 3% in 2023, twice as much as GDP.
- We think GDP dropped by 0.5% month-to-month in September; business surveys were very weak...
- ...And the extra public holiday for the Queen’s funeral likely was more damaging than the Jubilee holiday.
- A peak-to-trough fall in GDP of about 2.3% likely lies ahead, similar in scale to the early 1990s recession.
- 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.
- October’s PMI data point to a worsening recession; a 0.5% quarter-on-quarter drop in Q4 GDP looks likely.
- Price rises are slowing, but remain too brisk for the MPC to take breath; we look for a 75bp hike next week.
- Further falls in interest rate expectations will weigh on sterling now the fiscal credibility gap has largely gone.
- The new Chancellor’s quick actions have reduced the outlook for public borrowing in 2025/26 by £35B...
- ...But he needs to find at least £39B more savings to ensure the debt-to-GDP ratio is falling in three years’ time.
- CPI inflation likely increased to 10.1% in September, from 9.9% in August, slightly above the consensus, 10.0%.
- The outlook for gilt yields beyond this month depends on the economy’s performance, not LDI fund turmoil.
- August’s GDP data show a recession was underway before the surge in economy-wide borrowing costs.
- Inflation pressures will be extinguished by the recession; the BoE doesn’t need to go into overdrive.
- In one line: A big step closer to a recession.
- In one line: Employment not in free fall, yet.
- 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.
- The economy’s performance since Covid now looks even worse, after revisions to the national accounts.
- Business investment rebounded in Q2, but the recent rise in borrowing costs points to a sharp fall next year.
- Households’ real disposable incomes looks set to fall by a further 1% in 2023, dragging spending down.
- Tax cuts which disproportionately benefit the top 1% of earners will do little to boost demand.
- Most households are worse off, because the associated depreciation of sterling will raise the price level by 1.5%.
- Mr. Kwarteng likely will impose tough spending limits in the Budget, to try to reverse the jump in gilt yields.
- 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.
- We think the MPC will raise Bank Rate by 50bp next week, despite other central banks rushing ahead...
- ...Q3 GDP is set to undershoot the MPC’s latest forecast, while the inflation outlook has improved greatly.
- Proposed tax cuts are too small to move the inflation needle, and likely will be partly funded by spending cuts.
- 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.