28 July 2022 UK Monitor Is Britain Really Faring Better than Other Advanced Economies?

The U.K. composite PMI in July was above the 50.0 mark, in contrast to the U.S. and the Eurozone.

We think that this strength can be largely explained by the small manufacturing sector and recent fiscal policy.

Ofgem's energy price cap will rise by a further 23% in April, if the recent surge in wholesale prices is sustained.

Samuel Tombs (UK Economist)U.K.

15 July 2022 Sterling is Vulnerable, Due to the Colossal Trade Deficit

The trade deficit remained extremely large by past standards in May, driven by a surge in imports.

We expect the deficit to remain huge over the rest of the year; it is on track to be the biggest since the 70s.

Tory candidates tax pledges would have to be very large in order to alter the economic outlook materially.

Gabriella DickensU.K.

6 July 2022 Britain is Unlikely to Run Out of Natural Gas This Winter

Domestic production accounts for nearly half of natural gas consumption, well above the European average.

Imports from Russia accounted for only 5% of the total; the U.K. has long-term deals with Norway and Qatar.

The bigger risk is that manufacturers are indirectly af- fected by rolling blackouts in other European countries.

Samuel Tombs (UK Economist)U.K.

21 June 2022 Will Sterling Force the MPC to Stick to a Path of Rapid Rate Hikes?

OIS rates do not accurately reflect investors’ expectations for Bank Rate; a sub-2% peak wouldn’t be a shock.

The outlook for sterling is more closely tied to overall risk sentiment in markets than the outlook for U.K. rates.

Our call that rates will top out at 1.75% assumes positive supply-side developments which will boost risk appetite.

Samuel Tombs (UK Economist)U.K.

16 June 2022 The Trade Deficit is On Course to be the Largest Since the Mid-Seventies

The trade deficit was huge by past standards in April, despite narrowing to £8.5B, from £11.6B in March.

Import values have surged as fuel prices have shot up, while Brexit is continuing to weigh on exports.

We expect the largest trade deficit since the mid-70s in 2022, leaving sterling vulnerable to depreciate further.

Samuel Tombs (UK Economist)U.K.

30 May 2022 How will the MPC Respond to the Chancellor's Support Measures?

Mr. Sunak's measures will boost households' nominal incomes in H2 by 2% and nominal GDP by about 0.7%.

The medium-term impact, however, will be small, and the package is so timely the MPC can't feasibly offset it.

So the outlook for Bank Rate hasn't changed radically; we now expect it to rise to 1.50%, not 1.25%, this year.

Samuel Tombs (UK Economist)U.K.

17 May 2022 The Trade Deficit will Remain Large, Casting a Shadow Over Sterling

The trade deficit, excluding erratics, jumped to a recordhigh in March, largely due to the surge in energy prices.

High energy prices, surging imports of travel services and weak export growth will keep the deficit wide.

Governor Bailey is showing no signs of buckling to pressure from MPs for faster rate hikes to tame inflation.

Samuel Tombs (UK Economist)U.K.

21 Apr 2022 Stockbuilding will Swing to Depressing GDP Growth Shortly

Firms want to hold more stocks than in the 2010s, but now are accumulating them at a slower pace.

GDP growth depends on the rate of change in inventories, so the deceleration will depress growth.

Futures prices historically have been a better guide to energy prices than assuming they don't change.

Samuel Tombs (UK Economist)U.K.

15 Mar 2022 This Year's Trade Deficit will be the Largest Since the Late 1980s

• January's record large trade deficit was not just due to erratic items; higher energy prices are partly to blame.
• U.K. exporters also are continuing to lose market share; no reason to expect a turnaround this year.
• Imports will continue to rise quickly, driven by higher energy prices and the recovery in outbound tourism.

Gabriella DickensU.K.

11 Mar 2022 Households will Mitigate the Inflation Hit by Shifting their Spending Mix

• Households previously have reduced real expenditure on food and energy by 1% for every 5% rise in prices...
• ...So year-over-year growth in the expenditure deflator will be materially lower than CPI inflation this year.
• The RICS survey shows the housing market continued to fizz in February, but timelier data are sobering.

Samuel Tombs and Gabriella DickensU.K.

3 Mar 2022 Gilt Yields Now Look Sensible, After Tuesday's Plunge

• The 28bp drop in 10-year gilt yields on Tuesday was the largest daily decline since the E.U. referendum.
• Yields fell the most for gilts held significantly by the BoE, suggesting investors are less sure QT will begin soon.
• Don't fret about Russia's imploding economy; it absorbs just 1% of U.K. exports and 0.3% of overseas investment.

Samuel Tombs and Gabriella DickensU.K.

25 Feb 2022 The Economy will Stagnate if Energy Prices Stay this High

• This week's surge in energy prices, if sustained, will boost the CPI by an extra 1.5 percentage points.
• Households' real disposable incomes now are set to fall by about 2.2% this year, the most since WW2.
• Below-trend GDP growth lies ahead, which will obviate the need for much higher interest rates.

Samuel Tombs (UK Economist)U.K.

3 Feb 2022 Will Supply Constraints Continue to Ease, Reducing Inflation Risk?

• Supply chain disruptions, bottlenecks and goods and labour shortages have limited the recovery...
• ...But the last month has brought signs of progress of all fronts, despite the surge in Covid-19 infections.
• Supply disruptions should continue to ease, but labour shortages probably will be more persistent.

Gabriella DickensU.K.

1 Feb 2022 The Trade Deficit Will Widen this Year, Increasing Sterling's Vulnerability

• The overall trade deficit will more than double in 2022, as the value of natural gas imports surges...
• ...And the structural deficit in travel and transportation services gradually re-emerges.
• Financial inflows will pick up too, supporting sterling, but another risk-off episode would hurt the pound.

Samuel Tombs (UK Economist)U.K.