Archive

UK Shelter Costs Coasting

• The unusual stability of UK house prices is unlikely to last, while rent inflation is set to slow further. We expect the price-to-rent ratio to stabilise here at pre-pandemic levels.
• Rapid wage increases in the UK’s unbroken regime of excess inflation have eroded the price-to-earnings ratio to its lowest in over a decade, and will probably extend further.
• Banks have more regulatory space to lend while lower rates feed the affordability of leveraging up, so there are upside inflationary risks to this benign coasting narrative.

By Philip Rush

Canada: Trade Risk and Rate Flexibility

• The Bank of Canada held rates at 2.25%, as expected, with this second straight hold signalling a cautious pause as policy is firmly data‑dependent.
• With core inflation easing but still near 2.5% and unemployment elevated, rates are likely on hold through 2026 unless inflation or growth deviates materially.
• Trade uncertainty and CUSMA talks are key wildcards; the next move (probably a hike) is seen in 2027 if growth and inflation remain near projections.

Data-Driven Fed Holds the Line

• The Fed holds rates at 3.50%-3.75% as expected, pausing after three cuts. Two dissenters sought 25bp reductions, highlighting debate on easing timing.
• Inflation remains the key hurdle: Core PCE ~2.8-3.0%. Downside risks from unemployment were removed, delaying cuts.
• Two cuts are expected in H1 2026 (April-June), but tariff pass-through and wage pressures risk fewer/delayed cuts; labour weakness could accelerate easing.

Brazil Holding Before the Cut

• Brazil's Copom holds Selic at 15% as expected. It signalled easing in March if inflation moderates, while maintaining a contractionary stance through 2026.
• Deanchored expectations (4.0% 2026, 3.8% 2027) constrain the cutting pace despite headline inflation below 4.5%.
• Fiscal stimulus vs monetary restraint dilemma: a 50bp March cut is likely, but the pace depends on labour market cooling and currency stability.