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The U.K.'s relatively high rate of CPI inflation is largely due to government policies.
The energy price shock has been softened by grants, not tax cuts; VAT and NICs hikes have also played a role.
Higher core goods inflation than in the Eurozone is largely due to Brexit, not stronger underlying demand.
A jump in food prices was the main driver of July’s rise in CPI inflation, and the overshoot of the MPC’s forecast.
The core CPI continued to rise quickly, but recent falls in commodity prices point to slower increases ahead.
Lower petrol prices will mean CPI inflation undershoots the MPC’s forecast in August; a 25bp hike is on the table.
The trade deficit has hit a record share of GDP over the last two quarters, but it will only get worse.
Goods imports will fall, as firms now have excess stock, but the value of energy imports will surge this winter.
The U.K.'s shortfall in exports relative to 2018 remains the largest in the G7; Brexit is largely to blame.
CPI inflation likely jumped to 9.9% in July, from 9.4% in June, led by rises in motor fuel and food CPI inflation.
Eurozone data and the BRC's figures both point to a renewed rise in core goods CPI inflation in July.
Surveys show services prices have continued to rise at an above-average rate, albeit less quickly than in Q2.
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'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.
The effective interest rate on the stock of mortgages rose by only 11bp in H1, but will jump by 30bp in H2...
...and by a further 30bp over the course of 2023, if markets are right about the path for risk-free rates.
Firms still are very exposed to movements in short- rates; the transmission mechanism remains powerful.
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.
Households saved much less and borrowed more in Q2; real spending, therefore, likely was unchanged from Q1.
On paper, households have ample scope to reduce their saving rate further, but we see several constraints.
Some already have depleted savings, credit conditions are tightening, and deleveraging will be more attractive.
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.
Retail sales fell by 1.2% quarter-on-quarter in Q2, as households reduced big-ticket discretionary purchases.
Real household disposable income looks set to rise in Q3, thanks to government support measures.
But even if Ms. Truss pushes through her tax cuts, incomes will drop back in the winter, impeding sales.
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.
Accrued debt interest looks set to top the OBR’s forecast by £21B this year, and £15B in the medium term...
...This leaves insufficient headroom for Ms. Truss to de- liver her tax cuts and still run a balanced current budget.
Labour supply has not been hit by April’s increase in NI contributions; reversing it won't be self-funding.
The headline rate of CPI inflation topped the MPC forecast in June, due to higher motor fuel and food prices.
But the core rate fell, undershooting its forecast, as retailers struggled to pass on higher producer prices.
Core CPI inflation will fall sharply early next year, when recent falls in commodity prices will feed through.
The tax cut plans of Tory leadership contenders should be treated with a pinch of salt, given past experience.
Tax cuts won't lift GDP, if they are financed partially by spending reductions; the latter have a higher multiplier.
We doubt that even Ms. Truss would take away the BoE's independence.
We think that CPI inflation leapt to 9.4% in June, from 9.1% in May, exceeding the MPC’s 9.1% forecast.
But the upside surprise will be due to a massive rise in motor fuel prices, and another increase in food inflation.
Core inflation likely fell to 5.8%, from 5.9% in May; June 2021’s surge in goods prices likely wasn’t repeated.
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