- Rising interest payments are slowing the rate that public borrowing is falling.
- Fiscal headroom probably will be just half that assumed in the October Budget…
- …But Mr. Sunak still will have a free hand in signing off pre-election tax cuts in 2023.
- MPC members Bailey and Pill are sitting on the fence, despite last week's upside data surprises.
- In a weekend paper interview, the Governor highlighted the public sector's role in driving the recovery.
- We put the odds of a December rate hike at 60%, well below the 80-to-90% range priced by markets.
- The Chancellor spent only about half of the windfall stemming from the OBR's rosier economic forecasts...
- ...In order to build scope to cut taxes before the next election, while still meeting his new fiscal targets.
- The OBR's new GDP forecasts are too upbeat, while its debt interest forecast is too low, but this won't matter.
- The MPC will stop reinvestments in Q1 and start selling gilts in Q4 2022, if markets are right about rates.
- The impact of asset sales is unknown and the MPC wants them to be on auto pilot, so they will be cautious.
- Gilt sales of £10B per quarter would balance creating future stimulus space with keeping markets steady.
- The OBR likely will revise smaller its "scarring" estimate only to 2.5% of GDP, from 3.0% previously.
- The resulting uplift to future tax revenues will be offset by higher projections for interest payments.
- Mr. Sunak will have little, if any, headroom in meeting his target for a balanced current budget in three years' time.
- The OBR likely will revise up its forecast for debt interest payments in 2022/23 by nearly 1% of GDP.
- Interest payments will be boosted by the outlook for high inflation and markets' expectations for rate hikes.
- The MPC's plans to shrink the APF will mean more debt is financed at prevailing gilt rates, not Bank Rate.
The U.K. economy was the G7's straggler for a fifth consecutive quarter, despite the rebound in Q2.
GDP will barely rise in July; June's surges in output in the health and advertising sector will reverse...
...while data from OpenTable and the BRC point to a step down in consumers' spending last month.
Car demand surged in Q2, as easing Covid-19 restrictions boosted consumers' confidence.
But shortages of key components have limited the supply of new cars; used car sales have surged.
Used car sales look set to remain elevated this year, pushing up prices.
By the autumn, vaccination rates no longer will be higher in the U.K. than other advanced economies.
The chances of U.S. and U.K. rates rising in lockstep are remote; the U.S. recovery is far more advanced.
U.K. political risks are low now, but next year investors will start to weigh the risks from the 2024 election.
Covid-19 cases likely will pick up in September, as schools return and building ventilation declines.
Business closures in Q4 aren't likely, but households will remain cautious, delaying a full recovery.
In the event of a new variant and lockdown, we think the MPC would cut rates to -0.25%, despite 4% inflation.
The MPC's forecasts imply markets' expectations for future rate hikes are about right...
...But the risks to the MPC's economic forecasts now are skewed firmly to the downside.
We now expect the first rate hike in Q2 2023, slightly earlier than before, with QE wind-down coming later.
Now that negative rates are in the toolkit, the MPC might divulge its new estimate for the lower bound.
The MPC also might lower the threshold that Bank Rate must reach before it starts to wind down QE.
We expect Ofgem to announce on Friday that the default tariff cap will rise by a painful 13.5% in Q4.
The proportion of staff furloughed fell to 5.7% at the end of June, from 7.5% a month earlier...
...But surveys point to only a marginal fall in early July, and still high usage in fully recovered sectors.
Firms likely won't fully relinquish recent productivity gains; the employment rate will drop back in Q4.
The recovery in the manufacturing sector slowed in July, probably to a complete standstill.
Output should pick up in the autumn, amid easing supply constraints and robust restocking demand...
...But we see little chance of long-term reshoring; Brexit is another barrier to a sustained recovery.
The ONS' Business Impact of Covid-19 survey suggests business turnover has flatlined since late May.
The disruption caused by the "pingdemic" wors- ened in late July, but likely is now starting to fade.
Unemployment still looks set to jump in Q4, despite another hefty drop in furlough scheme usage in June
We now expect the MPC to end its gilt purchases immediately at next month's meeting, following last week's consumer prices data.
Investors hoping for a more hawkish tone from the MPC were left disappointed yesterday.
May’s public finance figures haven’t caused us to alter our view that the government will have to press ahead with the tax rises set out in the March Budget in order to reduce public borrowing to 3% of GDP in the mid-2020s.
Recent indicators of economic activity are not as uniformly positive as we hoped.
April's money and credit data suggest that the economic recovery is progressing, but not at a stellar rate.