Arbuthnot Banking : Growth hampered by supply problems as inflationary concerns intensify

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Date: 11^th October 2021

• Markit surveys for September suggested that growth continued in all three sectors, despite significant supply problems. Manufacturing and construction were weaker, though services industries were, perhaps surprisingly, a tad stronger than in August. Inflationary pressures remained a concern.
• The Bank's new Chief Economist Huw Pill sent written evidence to the Treasury Select Committee last week. He said "…in my view, that balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long lasting than originally anticipated".
• MPC member Michael Saunders, quoted in a newspaper interview, said that households must brace for "significantly earlier" interest rate rises as the Bank prepares to respond to rising inflation.
• Ofgem's price cap increased by 12% on 1 October and is expected to increase significantly again in April 2022, reflecting rapidly rising gas prices.
• Oil prices have firmed significantly since mid-August reflecting increased demand as lockdown restrictions are loosened.
• Productivity (measured by output per hour) rose by 0.1% (QOQ) in 2021Q2 as gross value added rose 5.5%, marginally more than the increase in total hours worked (5.4%).
• The SMMT reported that September's new car registrations were 34.3% (YOY) lower, the weakest September since 1998, as "the ongoing shortage of semiconductors impacted vehicle availability".
• Halifax reported that house prices rose 1.7% (MOM) in September to be 7.4% higher YOY.
• Insolvency Service data on redundancies for September suggested that large job cuts as the furlough scheme closed had not, so far, materialised.

• The IMF released the chapter on inflation for their October World Economic Outlook, in which they judged that long-term inflation expectations remain anchored.
• The US Senate approved legislation on 7 October to raise the federal government's debt limit (debt ceiling) in order to avoid the risk of default in mid-October.