Archive

UK: Unsustainable Wage Growth

• Wage growth of 3.25% is unlikely to be consistent with achieving the 2% inflation target, contrary to the BoE’s assessment that relied on consistently dovish-biased assumptions.
• Stagnant productivity and a recovery in profit margins are problems that should inform any coincident assessment. But the Bank is relying on the world to bail out UK excesses.
• The Euro area and China are not structurally exporting disinflation anymore, and the latter is not politically tolerable. The biased BoE seems set to keep missing its target.

By Philip Rush

ECB Holds in a ‘Good Place’

• The ECB holds rates at 2%, as expected, signalling a high bar for moves and reinforcing a data‑dependent, meeting‑by‑meeting stance.
• Inflation is below 2%, but core and wages are still firm, keeping easing and tightening risks balanced, and anchoring a “higher for longer” bias.
• A stronger euro, global demand shocks or sticky services inflation will be decisive for any future shift away from the current rate plateau.

HEM: Feb-26 Views & Challenges

• Policymakers have broadly signalled caution against cutting too far, feeding pricing for prolonged pauses.
• Resilient output, expanding credit, and the UK’s unbroken excess inflation problem should prevent further cuts.
• Risks from rising unemployment eased with stabilisation after a bad round of releases during December.

EA: Goldilocks In The Good Place

• Surveys of output in the Euro area are converging on a core narrative of resilience, with the ESI the highest in almost three years and broadly shared among member states.
• Price expectations have fallen for businesses in the consumer goods sector, but this isn’t because of weak demand. Retailers are most optimistic about sales in four years.
• Less uncertainty about better growth is bullish, but not hawkish, amid a disinflationary shock. The ECB should enjoy being in a good place, like Goldilocks, without the bears.

By Philip Rush