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- The Tories now trail Labour by 10pp in the polls; a no-confidence vote in Johnson is a growing possibility.
- Markets probably would prefer a more predictable successor who had a less combative Brexit stance...
- ...But the gap between the Tories and Labour on economic policy has narrowed.
- CPI inflation probably was unchanged at 5.1% in December, giving the MPC some breathing space.
- Pick-ups in food and used car price inflation likely were offset by falls in the tobacco and clothing components.
- The seasonal surge in plane ticket prices will boost the CPI less than usual, because its weight has shrunk.
- Omicron cases have peaked and hospital admissions will too soon, at only half their January 2021 peak.
- We now expect Plan B rules to expire on January 26, rather than be extended for another month...
- ...So we are revising up our forecast for quarter-on-quarter GDP growth in Q1 to 0.2%, from zero.
- The return of monthly saving to pre-Covid levels is a sign of the real income squeeze, not surging spending.
- The recent surge in house prices, however, is enabling refinancing homeowners to access lower interest rates.
- Firms continued to repay external borrowing in November, but we remain upbeat on the capex outlook.
- Quarter-on-quarter GDP growth was revised to 1.1% in Q3, from 1.3%, due to GFCF and public spending.
- The shortfall in U.K. GDP from its pre-Covid Q4 2019 peak still is among the biggest in the G7.
- Omicron, on top of falling households' real incomes and Brexit, will limit GDP growth in 2022.
Markets now expect the MPC to hike Bank Rate to 0.50% in February, following today's surprise hike.
Most members, however, thought the decision was "finely balanced" and see a "modest" tightening ahead.
Omicron won't just have short-term effects if the MPC hikes again and pushes firms over the edge.
November's 5.1% CPI inflation rate was 0.6pp above the forecast made by the MPC only last month...
...But high inflation is due to surging energy and goods prices; underlying services inflation remains subdued.
We expect the headline rate to peak at 6.0% in April, but then to fall sharply, slipping below-target in 2023.
- The MPC likely will hold back from raising Bank Rate next week, despite several upside data surprises.
- We are cutting our forecast for quarter-on-quarter GDP growth in Q1 to 0.3%, from 0.8%, due to Omicron.
- The Covid situation won't be better in early February; the March meeting is a better bet for the first rate hike.
- CPI inflation likely rose to 4.8% in November—0.3pp above the MPC's forecast—from 4.2% in October.
- Used car prices still are rising rapidly, while supermar- kets are passing on higher food prices to shoppers.
- Tobacco prices were lifted by a duty hike, while cloth- ing CPI inflation likely was boosted by a base effect.
- The MPC would ease monetary policy again in the unlikely event that another lockdown is imposed.
- Fiscal policy would be less supportive than in previous lockdowns; new curbs would dampen inflation.
- Negative rates are in the toolkit and are preferred to more QE; Bank Rate likely would be cut to -0.25%.
- 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.
- October's 4.2% rate of CPI inflation was well above the MPC's 3.9% forecast; such a large error margin is rare.
- The upside surprise came from the core, and will carry over to future months; April's peak looks set to top 5%.
- Mean-reversion in energy and goods prices, however, should ensure that CPI inflation dips below 2% in 2023.
- Energy prices likely were the key driver of higher CPI inflation in October, but the core rate probably rose too.
- Used car prices rocketed again, while data from the BRC point to a chunky rise in clothing prices.
- Hospitality firms probably raised prices in response to the VAT hike; the boost is uncertain but likely large.
- U.K. GDP was 2.1% below its Q4 2019 level in Q3, exceeding the shortfalls seen in other G7 counties.
- Households have continued to spend more cautiously than those abroad; high virus levels are partly to blame.
- Brexit also has contributed to the continued underper- formance; exports were 17% below their 2019 average.
- On balance, we still think the MPC won't act next month; Mr. Bailey hinted October's labour data may not suffice.
- The MPC's inflation forecasts seemingly support markets' view that rates will rise to 1.0% by the end of 2022...
- ...But they are based on implausible energy price figures; its spare capacity forecasts point to a lower rate path.
- In one line: Retaining its cautious approach.
- 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.
- 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.
- 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.
- 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.