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Growth in employment in the three months to June undershot the consensus by the most in nearly two years.
The workforce, by contrast, is finally picking up, assisted by a recovery in immigration, which will be maintained.
Vacancy and payroll employee data indicate labour demand is stagnating; unemployment will rise further.
Q2 GDP would have held steady without the Jubilee and risen by 0.9% q/q if Covid spending hadn't plunged.
The 0.2% q/q drop in households' real expenditure was a good result, given the massive fall in real incomes.
A recession isn't inevitable, provided fiscal support is increased substantially and households draw on savings.
PAYE data, vacancy figures and business surveys all suggest employment growth slowed in June and July.
Labour supply, however, is picking up; the unemployment rate likely was marginally higher in Q2 than in Q1.
Wages likely continued to rise in June at a rate inconsistent with the inflation target, but probably didn't speed up.
Dave Ramsden is the first MPC member to admit rates might need to be cut "quite quickly" in the medium term.
The cuts currently priced-in by markets from late H2 2023 aren't big enough to lower households' interest bill.
But CPI inflation won't be near the target until Q4 2023; pre-election fiscal stimulus will limit the scope for easing.
The MPC currently expects the unemployment rate to remain well below 4% until Q3 2023...
...But timely indicators suggest demand for labour already is cooling, just as supply is starting to recover.
We expect the unemployment rate to rise above 4% before year-end, keeping a lid on wages and rate hikes.
The MPC's forecasts signal clearly that markets' medium-term expectations for Bank Rate are too high.
But concerns about persistence in domestic price setting, and looser fiscal policy, will spur further hikes.
We now expect the MPC to raise Bank Rate to 2.00% in September and 2.25% in November, and then to pause.
House purchase demand is falling quickly in response to the jump in mortgage rates and drop in real incomes.
New mortgage rates look set to rise further in Q3, greatly weighing on approvals.
A contraction in supply, however, will prevent a slump in prices; we still forecast a modest 2% decline in H2 2022.
We have revised up our forecast for Q4 CPI inflation by 1.0pp since early July; energy prices have surged again.
But we have revised down our forecast for the level of GDP by only 0.5pp in Q4; fiscal policy will respond.
People also have shown more willingness to deplete savings; we still expect a recession to be narrowly avoided.
PMI data for July show that the recovery in GDP has nearly ground to a halt and inventory is piling up.
Employment growth slowed to a 15-month low, while the pace of input and output price rises eased materially.
On balance, the latest data imply the MPC won't act "forcefully"; market pricing for August is still too high.
The Governor emphasised at Mansion House that the drop in the workforce has been a key driver of rate rises.
So its 0.8% 3m/3m rise in May, the largest since 1984, should ensure the MPC sticks to a 25bp hike in August.
The workforce has scope to rebound further, while vacancy and survey data imply job growth will slow.
May’s rise in GDP was driven by a surge in doctor appointments-
really-and a jump in manufacturing output.
Consumer services firms struggled and will remain under pressure as households’ real incomes fell further.
June’s extra bank holiday also will dampen Q2 GDP, we expect a quarter-on-quarter contraction of 0.3%.
We think employment grew at a steady 0.5% threemonth-on-three-month pace in May.
But expect even faster growth in the workforce to mean that the unemployment rate edged up again.
Surveys suggest wage growth had no more momentum in May than in prior months.
The potential medium-term gains might make the nearterm stasis caused by a new Tory leader contest worth it.
A more pragmatic approach to E.U. relations would lift exports and capex; supply-side reforms are overdue.
A snap election isn't likely, given the big majority a new leader would inherit and the poor economic backdrop.
The first quarter’s rise in GDP has brittle foundations; households have had to retrench in Q2.
The support to GDP growth from restocking will fade; firms now have enough inventory to meet demand.
A recession, however, isn’t likely; households’ real dis- posable incomes will rise in Q3, and capex will recover.
Rising energy prices likely accounted for 1.6 percentage points of May's 4.9% rate of services CPI inflation.
While the jump in the VAT rate for the hospitality and recreation sector likely has lifted it by a further 0.6pp.
Underlying services inflation, therefore, only just exceeds its 2.5% average rate in the second half of the 2010s.
Mortgage rates have surged in recent months, but still have a lot further to rise over the summer.
Monthly mortgage payments for the average borrower will be £300 higher in July than at the end of 2021.
Prices will be supported by the solid labour market and savings, but the hit from higher rates will dominate.
Core CPI inflation declined to 5.9% in May, from 6.2% in April, and will fall further in June.
Retailers are shrinking their margins, rather than passing on surging producer prices fully to consumers.
Faltering demand will constrain future core price rises, enabling the MPC to stop its hiking cycle this year.
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