- Capex failed to pick up at all in Q3, as firms struggled to get their hands on transport equipment.
- Firms, however, appear keen to invest and have the financial resources, so a rebound remains likely.
- We expect capex to rise by about 10% in 2022 and 4% in 2023, eventually returning to 2019's level.
Samuel Tombs (UK Economist)U.K.
- 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.
Samuel Tombs (UK Economist)U.K.
- Budget announcements, including the jump in National Living Wage, will support earnings growth next year...
- ...but higher taxes and inflation suggest real take home pay will fall by 1.5%, the most since 2011.
- This is one key reason we expect the MPC will hike Bank Rate by less than markets currently expect.
Samuel Tombs (UK Economist)U.K.
- The near-term outlook for GDP has worsened, but 2022 looks a little brighter in the wake of the Budget.
- Higher energy prices mean we have revised up our forecast for CPI inflation in 2022 to 3.6%, from 3.4%.
- We now expect two rate hikes, not one, in the next 12 months, but still anticipate no change this week.
Samuel Tombs (UK Economist)U.K.
- The MPC's view the output gap has closed means it must counter plans for higher government spending.
- But the Committee can wait until 2022 to act; the recovery is faltering, and underlying inflation is not high.
- The MPC will see key jobs data if it waits until December; higher rates are coming, but not just yet.
Samuel Tombs (UK Economist)U.K.
- 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.
Samuel Tombs and Gabriella DickensU.K.
- 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.
Samuel Tombs (UK Economist)U.K.
- 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.
Samuel Tombs (UK Economist)U.K.
- Public borrowing in August was only slightly below the OBR's forecast; interest payments are picking up.
- We think the OBR will revise its long-term "scarring" estimate only to 2.5%, from 3.0% previously...
- ...The workforce has continued to contract this year, confounding the OBR's hopes of a rebound.
Samuel Tombs (UK Economist)U.K.
- Markets still expect the MPC to hike rates in Q2 2022, despite surprise plans to lift national insurance in April.
- The tax hike will defer a full recovery in households' spending to the second half of next year.
- The plans imply the Treasury does not expect the OBR to turn upbeat on the medium-term economic outlook.
Samuel Tombs (UK Economist)U.K.
- Businesses are reporting low inventory in relation to demand, but shops remain well-stocked for now.
- Labour shortages should fade now that self-isolation rules have eased and the holiday season is nearly over.
- The workforce, however, is 2.2% below its pre-Covid trend; migration and participation won't fully recover.
Samuel Tombs (UK Economist)U.K.
- The margin by which public borrowing undershoots the OBR's forecast will narrow over coming months...
- ...Interest payments will soar, while GDP growth in Q3 and Q4 will fall short of the OBR's expectations.
- The OBR's scarring judgement looks sound; productivity and participation have been lower than expected.
Samuel Tombs (UK Economist)U.K.
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.
Samuel Tombs (UK Economist)U.K.
We continue to think that the government will need to press ahead with its planned fiscal tightening over the next two years, if it wants to ensure that borrowing drops to 3% of GDP in the mid-2020s.
Samuel Tombs (UK Economist)U.K.
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.
Samuel Tombs (UK Economist)U.K.
The hawkish surprise last week from the U.S. Fed has left many investors questioning whether the MPC will follow suit this Thursday.
Samuel Tombs (UK Economist)U.K.
The public finances are healing faster than the OBR expected, though April’s figures are not quite as good as they appear at first glance.
Samuel Tombs (UK Economist)U.K.
