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Firm data support a rise in Bank Rate to 0.75% in March

Date: 21st February 2022

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest developments in the UK economy:
  • GDP rose by 1.0% in 2019Q4 and was almost back to the level in pre-pandemic 2019Q4. If there had not been back revisions to the 2021 data, GDP in 2021Q4 would have been back to the 2019Q4 level.
  • Services and construction grew in 20121Q4, but production output slipped. Manufacturing output was flat.
  • All the major expenditure components grew in 2021Q4, including household consumption, general government consumption and gross fixed capital formation.
  • GDP slipped by just 0.2% (MOM) in December and was equal to the level in pre-pandemic February 2020.
  • December’s GDP was dragged down by weaker consumer-facing services, which were adversely affected by the Omicron variant and associated tighter restrictions. Production output and construction both firmed.
  • The trade balance improved in 2021Q4, reflecting a significant improvement in the trade in precious metals (including non-monetary gold).
  • Retail sales partly recovered in January, rising by 1.9% (MOM), after December’s 4.0% (MOM) fall.
  • CPI annual inflation was 5.5% in January, after December’s 5.4%, and is expected to pick up significantly in April, when the utility price cap is raised again. In early February Bank staff expected inflation to peak at around 7¼% in April.
  • Producer prices inflation rates in January were 9.9% (YOY) for output prices and 13.6% (YOY) for input prices, suggesting further inflationary pressures in the pipeline.
  • The ONS reported that house prices rose by 0.9% (MOM, seasonally adjusted) in December to be 10.8% higher YOY.
  • Nationwide reported house prices increased 11.2% (YOY) in January, whilst the Halifax reported they had increased 9.7% (YOY).
  • The labour market continues to recover, with the number of payroll employees increasing by 108,000 (MOM) to 29.5mn in January, some 436,000 more than in pre-pandemic February 2020. The unemployment rate was 4.1% in the three months to December, 0.2 percentage points lower QOQ and 1.2 percentage points down YOY.
  • UK vacancies rose to a new record high of 1,298,000 in the three months to January.
  • Total pay (including bonuses) grew by 4.3% (YOY) and regular pay (excluding bonuses) grew by 3.7% (YOY) in the three months to December 2021. In real terms, total pay fell by 0.1% (YOY) whilst regular pay fell by 0.8% (YOY) as earnings increases were outstripped in prices increases.
  • Output per hour rose by 1.0% (QOQ) in 2021Q4 and was 2.3% higher than pre-pandemic 2019 (annual average).
Ruth Lea said “…recent UK data releases indicated continuing growth in underlying activity, a pick-up in inflationary pressures (with more to come), a firm housing market and a recovering labour market. These would all support the view that the MPC is likely to increase the Bank Rate further to 0.75% at their March meeting (announcement on 17 March). Not only did the MPC increase the Bank Rate to 0.5% at their February meeting, but four of the nine MPC members had supported an increase to 0.75%”.

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Arbuthnot Banking Group PLC: 

Ruth Lea, Economic Adviser 
07800 608 674, 020 8346 3482 
Follow Ruth on Twitter @RuthLeaEcon

Sam Cartwright 
020 7379 4415