23 Nov 2022 UK Monitor The Chances of Public Borrowing Falling Below 3% of GDP are Remote

• Borrowing undershot the consensus in October due to the timing and under-recording of energy support.
• The OBR's GDP forecasts assume an implausibly low saving rate and too rapid productivity growth...
• ...Plans for very tight public spending won't be stuck to; borrowing eventually will settle at about 4% of GDP.

Samuel Tombs (UK Economist)U.K.

UK Datanote: U.K. Public Finances, October 2022

• In one line: Cost of energy price support will be greater in future months.

Samuel Tombs (UK Economist)U.K.

11 Nov 2022 UK Monitor The Downturn in House Prices is Only Just Getting Started

• Timely data show house prices now are falling in the face of surging mortgage rates and falling real incomes.
• Supply is becoming scarcer, but it is not keeping up with cratering demand, we still expect prices to fall by 8%.
• Watch out for a jump in wage growth in September; many public sector workers received a 5% pay rise.

Samuel Tombs (UK Economist)U.K.

9 Nov 2022 UK Monitor Construction Output will Fall Twice as Sharply as GDP Next Year

• The construction sector continued to recover in Q3, as supply constraints and labour shortages eased...
• ...But we doubt it will defy gravity for long, given the surge in borrowing costs and the looming fiscal squeeze.
• Given the pro-cyclical nature of construction output, we expect it to fall by 3% in 2023, twice as much as GDP.

Gabriella DickensU.K.

UK Datanote: U.K. Public Finances, September 2022

• In one line: Austerity measures are coming.

Samuel Tombs (UK Economist)U.K.

11 Oct 2022 UK Monitor Gilt Yields Likely to be Lower by Year- end, as the MPC Hikes Cautiously

• Gilt yields rose again yesterday, as the BoE confirmed
  its bond-buying programme will end on Friday.
• Signs that the government has changed tack, however, continue to amass; the MPC can be cautious.
• Reducing public sector investment back to its share of GDP in the 2010s would offset the tax cut stimulus.

Samuel Tombs (UK Economist)U.K.

26 Sept 2022 UK Monitor Mini-Budget Measures Won't Revitalise the Economy Next Year

• Tax cuts which disproportionately benefit the top 1% of earners will do little to boost demand.
• Most households are worse off, because the associated depreciation of sterling will raise the price level by 1.5%.
• Mr. Kwarteng likely will impose tough spending limits in the Budget, to try to reverse the jump in gilt yields. 

Samuel Tombs (UK Economist)U.K.

22 Sept 2022 UK Monitor Gilt Issuance to Hit Eye-Watering Levels Next Year

• Public borrowing has tracked the OBR's forecast this year, but government spending now will soar.
• Loans to energy suppliers, to limit energy price rises, will boost the cash requirement, but not borrowing.
• We look for a gross financing requirement of about £325B in 2023/24, but the outlook is very uncertain.

Samuel Tombs (UK Economist)U.K.

UK Datanote: U.K. Public Finances, August 2022

• In one line: Revisions leave year-to-date borrowing in line with the OBR’s forecast.

Samuel Tombs (UK Economist)U.K.

13 Sept 2022 UK Monitor Q3 GDP Set to be Unchanged from Q2, Undershooting the MPC's forecast

• June's 0.2% month-to-month rise in GDP was due to the unwinding of the Jubilee hit; the trend is flat.
• We’re pencilling-in a 0.2pp hit to September GDP from the extra public holiday, but can’t rule out a bigger fall.
• Even excluding the impact of the Queen’s funeral, Q3 GDP looks set to undershoot the MPC’s forecast.

Samuel Tombs (UK Economist)U.K.

6 Sept 2022 UK Monitor How will Energy Price Interventions Impact the Inflation Outlook?

• Ms. Truss has been tight-lipped about her plans, but a
  trade body plan to freeze prices is gaining traction.
• If implemented, CPI inflation will return to the 2% target in 2023, easing the pressure for further big rate hikes.
• Firms need help too, though we think Ms. Truss will cut business rates and provide grants, not reduce VAT.

Samuel Tombs (UK Economist)U.K.

24 Aug 2022 UK Monitor Flash PMIs Suggest the Economy is Stagnant at Best

August’s PMIs suggest the recovery has petered out, with the manufacturing sector heading into recession.

Employment growth also has come off the boil, while price pressures mostly have continued to ease.

All this suggests the MPC have room to act with caution; a 50bp hike is not the done deal assumed by markets.

Samuel Tombs (UK Economist)U.K.

23 Aug 2022 UK Monitor Public Borrowing of £170B this Year Likely Needed to Avert a Recession

Interest payments look set to be about £37B higher in 2022/23 than the OBR forecast in March.

So the next PM will have to borrow more this year than last to have a fighting chance of averting a recession.

We expect Ms. Truss to unveil tax cuts and extra grants worth an extra £20B this year, and £44B in 2023/24.

Samuel Tombs (UK Economist)U.K.

UK Datanote: U.K. Public Finances, July 2022

• In one line: Borrowing will total about £170B this year, well above the OBR’s £99B forecast.

Samuel Tombs (UK Economist)U.K.

15 Aug 2022 UK Monitor Q2 GDP Withstood the Government Spending and Jubilee Drags Well

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.

Samuel Tombs (UK Economist)U.K.

28 July 2022 UK Monitor Is Britain Really Faring Better than Other Advanced Economies?

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.

Samuel Tombs (UK Economist)U.K.

UK Datanote: U.K. Public Finances, June 2022

• In one line: Record accrued debt interest to blame for April’s blowout borrowing figure.

Samuel Tombs (UK Economist)U.K.

21 July 2022 UK Monitor June's CPI Data Unlikely to Spur the MPC to Hike by 50bp Next Month

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.

Samuel Tombs (UK Economist)U.K.

20 July 2022 Reviving Workforce Growth Eases the Pressure for Large Rate Hikes

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.

Samuel Tombs (UK Economist)U.K.

19 July 2022 The MPC Won't be Distracted by Tax Cut Proposals for Now

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.

Samuel Tombs (UK Economist)U.K.