2 Dec 2022 UK Monitor Price and Wage Data are Aligning for a Smaller MPC Rate Hike this Month

The slowdown in the pace of core price rises in the Eurozone in November is a good omen for the U.K.

Inflation expectations among households and businesses are falling, now that a recession is taking hold.

Manufacturers’ and retailers’ excess inventory reinforces the case for expecting goods inflation to drop.

Samuel Tombs (UK Economist)U.K.

17 Oct 2022 UK Monitor Fiscal U-turn Insufficient to Avert a Credit-led Recession

• Expectations for Bank Rate and gilt yields still are higher
  than before the mini-budget, despite the u-turn.
• The forthcoming real-terms reduction in government spending looks set to be bigger than in the 2010s.
• Bailey's warning of a "stronger response" than anticipat- ed in August doesn't endorse markets' rate expectations.

Samuel Tombs (UK Economist)U.K.

13 Oct 2022 UK Monitor The Developing Recession is More Important for Gilts than the LDI Crunch

• The outlook for gilt yields beyond this month depends on the economy’s performance, not LDI fund turmoil.
• August’s GDP data show a recession was underway before the surge in economy-wide borrowing costs.
• Inflation pressures will be extinguished by the recession; the BoE doesn’t need to go into overdrive.

Samuel Tombs (UK Economist)U.K.

4 Oct 2022 UK Monitor Forecast Review, A Recession Induced by Policymakers Lies Ahead

• We now look for a 1.5% year-over-year drop in GDP in 2023, worse than our prior forecast for a 1.2% decline.
• The Energy Price Guarantee has shored up real in- comes, but the tax cuts are counterproductive, net...
• ...The hit from the resulting drop in sterling and rise in mortgage rates will outweigh the direct fiscal boost.

Samuel Tombs (UK Economist)U.K.

27 Sept 2022 UK Monitor Will the MPC Pick Prolonged High Inflation or a Mortgage Crisis

• A recession now is all but inevitable; the key questionis how the pain will be distributed.
• Hiking Bank Rate to 6% would crush domestically-generated inflation; mortgage defaults would soar.
• Hiking more slowly would depress sterling and boost imported inflation, but is the lesser evil for the MPC.

Samuel Tombs (UK Economist)U.K.

23 Sept 2022 UK Monitor MPC Likely to Stick to Another 50bp Hike in November, Despite Tax Cuts

• The improved near-term outlook for CPI inflation has left the MPC less anxious about second-round effects.
• The MPC is awaiting more details on fiscal policy; a 75bp hike in November can't be ruled out...
• ...But the proposed tax cuts will do little to boost GDP, and spending might be cut; we still expect a 50bp hike.

Samuel Tombs (UK Economist)U.K.

20 Sept 2022 UK Monitor August's Drop in Retail Sales Makes a 50bp Bank Rate Hike More Likely

• The drop in August’s retail sales volumes was below consensus, but almost matched our forecast.
• The weakness was broad based; consumers cut back on both essential and discretionary goods.
• The larger-than-consensus fall makes a 50bp increase in Bank Rate this week more likely than a 75bp hike.

Gabriella DickensU.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.

9 Sept 2022 UK Monitor A Recession Now Looks Unlikely, following Bold Energy Price Action

• The average household will spend less on energy over the next six months than during the last six.
• So a winter recession now looks unlikely, and the MPC can return to focussing on core CPI inflation.
• Fiscal policy will stabilise demand, not lift it; job market slack still looks set to emerge, limiting rate hikes.

Samuel Tombs (UK Economist)U.K.

7 Sept 2022 UK Monitor July GDP to Show the Economy has Slowed, but is Not in Recession Yet

• We look for a modest 0.3% month-to-month rise in July
  GDP, leaving it only 0.1% up from three months earlier.
• The composite PMI has pointed to stronger growth, but it excludes the distribution and health sectors.
• Revised GDP estimates later this month likely will show that economic activity still is below its pre-Covid peak.

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.

5 Sept 2022 UK Monitor Forecast Review: Lifting Our Bank Rate Forecast, Despite a Looming Recession

• The jump in energy prices in August means we now expect CPI inflation to peak just above 16% in April 2023.
• Wage and inflation expectations have risen too, so we now see 50bp rate hikes in September and November.
• Extra fiscal support likely won't stop a consumer down- turn; an early 2023 recession has become our base case.

Gabriella DickensU.K.

31 Aug 2022 UK Monitor Government Support Needed to Maintain Real Consumption

• Households continued to save less and borrow more in July, in order to maintain consumption.
• Looking ahead, though, people lack the fire-power to withstand future income shocks.
• We now think a winter recession will be avoided only if the government beefs up financial support massively.

Gabriella DickensU.K.