The Economy Grew by 8% in 2021 ... Rates Set To Rise ...

Economic output exceeded pre-pandemic levels for the first time in November. GDP increased by 0.9% compared to prior month. Compared to prior year output increased by 8.1%. Despite an assumed setback in December, we now think the economy will have grown by 8% for the year as a whole. 

In our forecasts for 2021 we model growth at 7.5% with an upside of 8%. We attached greater uncertainty at that time to the outlook for manufacturing and construction. Construction output was up by almost 7% in the month. Manufacturing growth slowed to just 0.4% year on year.

Service sector growth was up by 9.5% in November. We expect growth of 8% in the final quarter and 8.3% for the year. To some extent more clarity is provided on the direction of travel. Our low growth scenario for construction and our high growth scenario for manufacturing, have been eliminated. We expect growth of around 5.5% in 2022, slowing to the trend rate of growth of 2.1% thereafter. This means the economy will enjoy a period of nominal growth of the three year period of almost 25%. A great opportunity for debt absorption in relation to GDP or revenues on a national or corporate level.

You can access our updated 30 page chart book on our Flipsnack Channel The Saturday Economist Forecasts for 2022 by clicking on the link. We model GDP(O) output as we would with our conventional business models. No theory, just pragmatic, empirical analysis.

Rates Set To Rise ...
Markets are bracing for the escape from Planet ZIRP. Our Friday Forward Guidance outlines the pattern of rate hikes. Base rates in the U.S. and the U.K. will end the year around 1%. Bond yields are set to rise to 2.5% in the U.S. and 1.5% plus in the U.K. The outlook for pension fund deficits will look much better this time next year.

Market volatility is expected in the current year. Equity markets took a hit last week. Our Monday Morning Markets update will assess the damage and try to explain the Sterling rally! Our Labor Market and Inflation outlook will be updated next week. The Fed is reacting to the 7% rise in December's headline rate in the U.S.. The Bank of England may not have to wait until April for the 6% CPI spike in the U.K.

Trade Deficit Set To Increase ...
The latest data suggests the deficit trade in goods will increase to £155 billion this year from £129 billion last year. Exports increased by 4.6%. Imports increased by just over 9%. The pattern of trade is moving away from the EU, more in terms of imports rather than exports. The EU share of imports fell to 47% in 2021 compared to 53% in 2020. Truly global Britain is becoming an open market to container shipments from around the globel as the workshop of the world continues to lose share of trade,

The trade deficit in goods was offset by the service sector surplus of some £135 billion last year. Combined exports (goods and services) of just over £600 billion, still leave us some way short of that £1 trillion Pound export target.

Forecasts for 2022 ...
That's all for this week. Have a great weekend and a great week ahead. You can access the chart book The Saturday Economist Forecasts for 2022 by clicking on the link. Forward to a friend or colleague, encourage them to sign up for our FREE updates.

My thanks to every one for their support during the past year. We continue to work with a number of private clients including Protiviti and Robert Half this year. If you would like to join our Private Client Group just drop me a line. "Great Research dies in darkness."

The reaction to our Monday Morning Markets and Friday Forward Guidance has been great. We look forward to a great year ahead as we extend the coverage of economics, strategy and financial markets. The Saturday Economist, we always keep you in the picture ...

John
John Ashcroft : Friday Forward Guidance, The Saturday Economist, Monday Morning Markets ...