Forecasts for 2022 ...
This is our first Saturday Economist publication for 2022. Yesterday we released our Friday Forward Guidance. On Monday we published our Monday Morning Markets Review of past year. Today we update our forecasts for the UK economy for the year ahead. You can access the full chart set on our Flipsnack channel using the link or clicking on the photo.
We use the word "forecast" cautiously. It is a best guess scenario. A benchmark at best. Lot of caution and uncertainty surround the outlook for growth, inflation and monetary policy. So what's new about that.
World Growth ...
In October, the IMF released their forecasts for the world economy. Growth of 4.5% was then expected for the year ahead. Our good friends at CEBR have adjusted their outlook for the year down to 4.0%. Economies are currently hampered by supply side shortages and the impact of the omicron variant. Growth of 4% - 4.5% would remain a fair call for the twelve months ahead. We outline in detail our expectations for major markets in our Saturday Economist Live updates.
World trade expanded by around 12% last year, leading to supply side shortages and delivery issues especially in container freight. Growth in the second quarter was up by 22% slowing to 8% in the third quarter. We expect growth to slow to around 4.5% this year. It may take some time for container congestion to unwind.
UK Growth ...
Economists have penciled in growth of 7% in 2021, slowing to 4.7% in 2022 according to HMT Forecasts for the UK Economy published in December. Our outlook is a slightly more optimistic scenario. We expect growth of 7.5% in 2021, slowing to just over 5% in 2022. We attach greater uncertainty to the outlook for manufacturing and construction. We assume a short term setback in the first quarter for leisure, hospitality and travel.
CPI inflation is expected to average 5% in the final quarter for 2021. The Bank of England expects the level to peak at around 6% in April. 7% could be the level attained, without some intervention to moderate the energy price cap. Thereafter inflation is expected to slow towards 3.5% by the end of the year. The inflationary impact of the rise in oil prices last year fades into the second quarter of the year and is eliminated into the second half.
Greggs are warning of price increases to come in the year ahead. Sainsburys have announced an increase in minimum wage. The big fear is price transmission into earnings as domestic household costs rise. We expect earnings to slow to a trend rate 3.5% by the end of the year. The cost of living squeeze, acute at the start of year, eases by close.
Labour Market ...
In October, the unemployment rate fell to 4.2%. There were 1.4 million unemployed. The number of vacancies in the economy was 1.2 million. Earnings growth had slowed to 4.9%. There were 32.5 million in work. The numbers on furlough had been largely absorbed into work or so it would appear.
In the US, the unemployment rate fell to 3.9%. So what to make of our projections into 2022? We model out with an unemployment rate of 4.5% through 2022. The number of vacancies expected to fall to 750,000 by the end of the year but then again?
Twin Deficits Borrowing and Trade ...
In the chart set we forecast the outlook for the twin deficits of Public Sector Borrowing and Trade. We also provide a first look at the impact of Brexit on trade. No discernible impact on the volume and pattern of exports, share of imports increasing from the rest of the world.
Markets and Interest Rates ...
Our Monday Morning Markets and Friday Forward Guidance provide weeky updates on trends in financial markets. Last week, bond yields moved higher, the Nasdaq slipped 4%. The S&P closed down in the first week of trading. This is a bad omen for performance in the year ahead as we will explain on Monday.
That's all for this week. Have a great weekend and a great week and year ahead. This is the first in our series for 2022. The Forecasts will provide a benchmark during the year.
My thanks to every one for their support during the past year. My special thanks to everyone with whom we have been able to work this year. Thanks also to our Premium Subscribers. Your support is invaluable to be able to develop the product offer.
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 Ashcroft : Friday Forward Guidance, The Saturday Economist, Monday Morning Markets ...
The Saturday Economist
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The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.