It is becoming increasingly apparent that the pick-up in inflation, particularly in the US, is cyclical. It is not just a consequence of base effects. Traditionally, any cyclical pick-up in inflation has required a monetary policy response. But that is not the intention of policymakers at present. The FOMC continues to believe that the pick-up will be transitory. We have our doubts. Inflation overshoots driven by a spike in the oil price, by a change in tax rates, or by a depreciation of the currency, tend ultimately to subtract from household real incomes. In that sense, they can be self-limiting,

It appears that the worst of the situation in India and neighbouring countries is in the past, though the Delta variant at the heart of the outbreak has spread well beyond India. The WHO is tracking cases of the variant reported by 62 countries. There have been a handful of hotspots of the Delta variant in the UK which have experienced new, localised waves. Whilst cases have been rising, deaths have remained low, which can be largely attributed to the adoption of COVID-19 vaccines. So, the race to vaccinate the adult population has become a sprint.  Based on the current

Households in the major economies have built up substantial excess savings pots during the past twelve months, supported by a variety of government programmes set up to limit the economic harm caused by the pandemic. By the end of March, these probably amounted to some 6%-8% of annual GDP in the US and the UK, and some 3%-4% of annual GDP in the euro area. What will happen to these savings as economies reopen? In answering this question, policymakers have taken what seems to us to be an overly cautious approach. Using textbook models of consumer behaviour, the Bank of

Global, new, confirmed cases of COVID-19 have fallen by almost half since their peak in early January, while fatalities are down sharply too. It seems probable that a mixture of non-pharmaceutical interventions (NPIs), voluntary social distancing, existing immunity, seasonality and vaccinations have all played a role. Until now, disentangling the precise effects of each has proven challenging, making it difficult to forecast the evolution of the disease with any accuracy. However, there is good reason to believe that this will change as the impact from vaccines becomes increasingly pronounced. This chart is taken from Fathom’s Recovery Watch newsletter. Click here to subscribe to Recovery Watch.   Refresh this

The UK government has targeted 14 million vaccinations by mid-February, with the aim of providing initial doses to key workers, the clinically extremely vulnerable and the over-70s. To date, just over 2.8 million doses have been administered, approximately 20% of what would be required under a one-dose strategy (or 10% on the double-dose approach). If doses continue at the current rate of 1.4 million per week, that goal could be achieved by the middle of March, a month later than targeted. Of course, the rate ought to pick up as mass vaccination sites come on stream, and so mid-March may

In the three weeks since our previous Recovery Watch was published two new ‘variants of concern’ (VOCs) of the virus that causes COVID-19 have emerged — one in the UK and one in South Africa. There is no evidence yet to suggest that they are more likely to cause serious disease, but both are thought to be 50% – 70% more transmissible. New cases are drifting higher in Europe, driven by rapid growth in the UK, and are rising in sub-Saharan Africa too. In response, the UK has today entered nationwide lockdown, while other countries in Europe are tightening restrictions.

Data released at the end of last week pointed to a 245,000 increase in net, non-farm US payrolls in November. That marked a slowdown from October’s 610,000 increase but suggested some resilience in the economy despite a sharp increase in coronavirus infections through the month. It seems likely that December’s jobs report will show a drop in US employment, however, as surging infections lead to increased economic restrictions in some states. Last week, the California governor, Gavin Newsom, announced that stay-at-home orders would be automatically triggered when regions fell below 15% spare capacity in intensive care units. Within days, areas accounting for more than three quarters of the state’s population were subject

Policymakers across developed economies have responded to the economic impact of COVID, which triggered the steepest recession of all time, with correspondingly massive policy stimulus. With monetary policy already extremely stimulative, the bulk of the new stimulus had to come from fiscal loosening, as the chart illustrates. That fiscal loosening was vital in mitigating the worst economic impact of the disease, and it will continue to provide much-needed support for growth even after effective vaccines become widely available in the New Year. The middle of next year is likely to see extremely strong growth across the developed world as a

Sentiment among investors is more bullish than at any point since 2018, according to the American Association of Individual Investors’ survey, a widely used indicator of market sentiment. With policy measures unlikely to be unwound anytime soon and the prospects of a vaccine ever closer, the market prospects appear sound, but investors need to look out for complacency. Risks around the effective delivery of a vaccination programme and the increasing trend in the number of cases in many countries should not be forgotten. This chart is taken from Fathom’s Recovery Watch newsletter. Click here to subscribe to Recovery Watch. Refresh this chart in your browser | Edit the chart in Datastream ________________________________________________________________________________________

More countries across Europe have imposed restrictions on movement as identified cases of COVID-19 continue to rise. This week, Austria took the unpopular step of closing schools and non-essential shops, while Scotland announced that eleven local authority areas will be subject to level four restrictions from Friday, and non-essential travel into or out of these areas will soon be made illegal. Those moves follow the reimposition of restrictions in the Netherlands, Belgium, France and Germany, where COVID-19 cases have now started to come back down, as illustrated in the right-hand pane of the chart below. But elsewhere in Europe cases

News about the early efficacy rate of the BioNTech/Pfizer vaccine is unambiguously positive for the economic outlook. Admittedly, a vaccine will not arrive in time to spare a probable contraction in GDP in many European countries this quarter. However, it gives us more certainty that economic activity will rebound strongly in 2021. One important tailwind through next year will be the substantial amount of savings that households have built up in developed markets since March. In the US, for example, aggregate personal savings over the past twelve months were $1.3 trillion higher in September than they were in February. If

Over the past week Belgium, France and Germany have responded to the dramatic increase in identified cases of COVID-19 across Europe by imposing nationwide restrictions on economic activity. And from midnight tonight, England will join Northern Ireland and Wales in imposing its own second national lockdown. The restrictions are, in general, less severe than those imposed in the spring, with schools remaining open. The intention at least is that they will be time-limited, with most countries planning to shut down sectors of their economy for four to six weeks. The success of Israel and Ireland, two of the first countries