September 23, 2022
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UK: Winding Taxes Back and Deficits Up

  • The UK government is delivering the tax cuts pledged by Liz Truss during her leadership campaign and more. Previous tax hikes are reversing while spending is maintained.
  • New policy decisions cost about £40bn a year, plus £60bn for the energy price guarantee in year one. Stimulus from a stamp duty cut leans against the BoE’s rate hikes.
  • Measures may not survive the next general election. The risk of another reversal lessens their impact on incentives. A lack of proper scrutiny also doesn’t help confidence.

By Philip Rush

September 22, 2022
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BoE: Calmed by Lower Inflation Peak

  • The BoE hiked by another 50bps to 2.25%, as economists (including us) expected, rather than the 75bps risk embedded in market pricing. Dissent split on both sides of this.
  • Further forthcoming fiscal stimulus will likely encourage the BoE to forcefully hike again in November before slowing as the 2yr inflation outlook rolls below the target.
  • Active gilt sales are beginning, but a hurdle to change outside of annual reviews means the programme is worryingly unresponsive to the economy’s requirements.

By Philip Rush

September 16, 2022
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UK: Post-Prime Retail Sags

  • Payback was brutal in August after retail sales relied on Amazon Prime Day sales for buoyancy in July. All the main sectors fell m-o-m for the first time since Jul-21.
  • The underlying trend decline remains intact and has now broadly reversed the rotation from covid, but with sales volumes still collapsing at about a 5% annualised pace.
  • High inflation and rates are continuing to crush real incomes and sales volumes. More forceful rate hikes risk driving a recession as bleak as consumers already feel.

By Philip Rush