The uplift seen in UK rent inflation data may help to explain recent rises in overall inflation numbers. Rent represents one of a number of slow-moving drivers — others include rail fares, water, and council tax bills. The ONS inflation numbers record the price of the stock of rental properties, but with tenancy contracts typically reset only once a year, it takes time for new market rates to surface. Hence, with an 8% weighting attached to rent price in the CPI, and 35% of UK households renting in 2023-24, such lagged indicators may explain continued above-target inflation in the short

The ONS’s estimate of the number of payrolled employees in the UK fell by 47,000 in December, following a smaller decline in November. On the face of it, the sharp drop in payrolled employment was troubling. Adjusting for relative population sizes, it is equivalent to a fall of more than 200,000 in US non-farm payrolls, which is the kind of fall one might expect to see in the first month of an NBER recession. In the wake of October’s Budget, we revised down our forecast for near-term growth, to include a period of stagnation through 2024 Q4 and 2025 Q1.

In the UK, the Bank of England’s (BoE) stance on monetary policy and the future path for interest rates have been hot topics since the beginning of the year, and for good reason. Opposing forces, of both stagnating economic growth and stubborn inflation, are expected to have an impact on UK interest rate decisions in 2025. However, on the whole, Fathom does not expect interest rates to reduce much, with just one cut forecast over the course of 2025. Refresh this chart in your browser | Edit the chart in Datastream Stagnating economic growth has been a recurrent issue for the UK

Refresh this chart in your browser | Edit the chart in Datastream UK bond yields are rising, causing pain for borrowers, including the Treasury and UK Chancellor Rachel Reeves. This rise limits the UK’s fiscal space, while curtailing economic growth. Without the latter, the former gets even tighter. Breaking this cycle is going to be a huge challenge for the UK government and Chancellor. Bond yields are rising for a variety of reasons including international factors, and in particular a recalibration of investors’ expectations about the pace and magnitude of policy tightening by the US Federal Reserve. But inflation in the UK

The UK economy is estimated to have contracted by 0.1% in October. One should not place too much weight on a single economic statistic, particularly when it relates to UK monthly GDP. Over the period from 2018 through to the end of last year, but excluding periods of lockdown, the standard deviation of the current estimate of monthly GDP growth is 0.4 percentage points, and the mean absolute revision to the initial estimate is 0.2 percentage points. Nevertheless, as we set out in our Global Outlook, Winter 2024,[1] we expect the UK economy to display little or no economic growth

Labour’s first budget in 14 years entails a significant fiscal loosening, with the direct effect of budget measures raising spending by £72 billion by the fifth year of the forecast. Around two thirds of this will come in the form of higher current spending and one third in higher capital spending, according to the OBR. With the direct effect of higher taxes estimated to raise an additional £42 billion in revenue, the shortfall, which is estimated to be £36 billion once the indirect effects of the new measures are taken into account, will be covered by higher borrowing. As Fathom

This week’s UK Budget is the first under a Labour administration in more than 14 years, and to describe it as ‘closely watched’ would be something of an understatement. According to standardised OECD estimates, UK government spending (‘disbursements’) exceeded UK government receipts by some 5% of GDP last year. While recognising the fragility of the UK public finances, the Labour government appears keen to borrow to raise capital spending. In our view, this is rightly so. Over the past five to ten years government capital spending as a share of GDP has been running at around half the levels seen

The UK has suffered from chronically low levels of public investment in recent decades. Compared to its G7 counterparts, the UK has consistently ranked in the lower half of countries on public investment as a percentage of GDP for most of the last 30 years. Worryingly, it has also typically ranked the lowest in the G7 in terms of overall investment, public and private. The new government’s proposed ‘Green Prosperity Plan’ and its ideas for a national wealth fund do suggest some appetite for increased public investment. Fathom estimates that these two plans can contribute to a one per cent

The latest UK headline inflation figure surprised on the downside, coming out at 2.0% in May. The reading was down from 2.3% in April and meant that headline inflation reached the Bank of England target level for the first time in three years. Non-energy industrial goods (particularly household goods, clothing and footwear, and vehicles), food, alcohol and tobacco were the categories that contributed the most to the slowdown, while transport (particularly motor fuels) was a positive contributor. Refresh this chart in your browser | Edit the chart in Datastream Despite the lower figure, the gap between overall goods and services inflation has

Sir Keir Starmer’s newly elected Labour government is trying to address the UK’s public sector deficit by growing the economy. However, in contrast to the brief administration of Liz Truss, he is seeking to achieve this not by cutting taxes, but by encouraging greater investment. With the UK languishing at the bottom of the G7 investment league table for 28 of the past 42 years this approach is not without merit. If — and it is a big if — he is successful in his aim of boosting growth, the potential upside to sterling appears substantial. Using more than 150

Having won a landslide victory in last week’s general election, the UK’s new Labour government now faces the challenge of resurrecting an economy that has been plagued by a poor trend rate of growth over the past few years. A large part of the country’s poor economic performance can be attributed to persistently weak investment, especially since the 2016 Brexit referendum. Indeed, Fathom calculations suggest that, had investment followed its pre-referendum trend, it would be around 15% higher than it currently is. Refresh this chart in your browser | Edit the chart in Datastream Ironically for a centre-left political party, many of

The Bank of England decided to maintain its key policy rate at 5.25% at its June meeting, despite data from the Office for National Statistics (ONS) showing that headline inflation fell to the Bank’s 2% target in May, from 2.3% in the previous month. This marks the first time in almost three years that UK inflation has not exceeded its target. The decline in headline inflation was in line with forecasts by economists polled by Reuters, and means that headline inflation is now lower in the UK than in either the US or the Eurozone. However, core inflation, which excludes