- The month-to-month rise in the core CPI in August was only 0.1pp bigger than the average in the 2010s.
- Used cars and computer games drove the large monthly gain; no sign of broad-based price increases.
- Higher energy prices will push up the headline rate to 4% in Q4 and Q1, but the MPC needn't blink.
- We think CPI inflation leapt to 3.1% in August, from 2.0% in July, above the 2.9% consensus.
- Core inflation likely jumped on the anniversary of the Eat Out to Help Out Scheme...
- ...But it also probably was boosted by abnormally large increases in used car and other goods prices.
- The MPC's energy price assumptions for its inflation forecast are too high in the near-term, and for 2023.
- Wholesale electricity and natural gas price changes don't immediately impact the CPI...
- ...Future prices still imply that Ofgem will lower slightly the default tariff cap next year, not raise it further.
- From now on, the U.K. Monitor on the first Monday of each month will summarise recent forecast changes.
- We now think GDP flatlined in July, so our Q3 fore- cast, 1.5% q/q, is well below the consensus, 2.4%.
- Our 3.7% forecast for the CPI inflation in Q4—probably the peak—is below the MPC's new 4.0% estimate.
- Shortages of workers and, to a lesser extent, materials, should ease in Q4, enabling output to rise.
- Businesses plan to invest more over the coming quarters, and can continue to adapt to Covid-19.
- Public sector output will rise too; school attendance will pick up and waiting lists will keep hospitals busy.
- Households' stock of excess savings rose in July to 8.3% of 2020 GDP, after another cautious month.
- The proportion of credit card debt repaid rose to a record high; ad hoc mortgage payments were high too.
- Businesses aren't borrowing either, though capex still looks set to recover from rock-bottom levels in 2022.
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
Business investment slumped in Q1, as lockdowns weighed on firms' confidence.
While balance sheets look healthy in aggregate, firms have so far used the cash to pay off debts.
But looking ahead, the super-deduction policy should help to unlock some of that cash.
The larger-than-consensus fall in the composite PMI adds to evidence that the recovery is slowing.
The disruption caused by Covid-19 cases is only part of the story; a weaker underlying picture is emerging.
Prices still are rising sharply, but there are some early signs that the upward pressure is easing.
We now expect the MPC to end its gilt purchases immediately at next month's meeting, following last week's consumer prices data.
The story of the U.K. economy's underperformance relative to its international peers remains intact after the Q1 national accounts.
The pound's retreat during June to $1.39, from $1.42, will have left many investors who have been long sterling this year—a crowded trade—nursing unrealised losses.