Archive

UK: Government Leads Imbalances

• Household saving and inflation have eroded their debt burden while corporates remain prudent. A lack of imbalances to correct starves the UK of fuel for a recession fire.
• Persistent fiscal and current account deficits highlight where the UK’s primary risk lies. If the market regime focuses on fiscal issues, the corrective pressures could be fierce.
• We don’t expect that correction to occur, but the Chancellor should tread carefully, while doves need not worry about a recession arising from healthier other UK sectors.

By Philip Rush

RBA Holds at 3.6%: Inflation Concerns Temper Easing

• The RBA holds at 3.6% as expected, but warns that Q3 inflation may exceed forecasts, with the underlying decline slowing.
• Stronger Q2 GDP growth (1.8% annually) and a resilient labour market (4.2% unemployment) complicate the easing outlook amid a recovery.
• A November rate cut remains possible but less likely, with banks split between November 2025 and May 2026 for the next move.

UK: Lending Looks Stimulated

• Lending activity is sustaining beyond the levels prevailing before the stamp duty tax hike distortion. Only housing transaction volumes are down, but by less than before.
• New loan rates have fallen by 23bp since then, for a 110bp cumulative fall. New rates are close to the outstanding stock. Many borrowers are refinancing for similar deals.
• Past tightening has broadly passed through, but the strength in broad money growth signals that monetary conditions are settling at a slightly stimulative setting.

By Philip Rush

HEW: Resilience Reminders Roil Doves

• Bullish GDP revisions and jobless claims provided further reminders that the economy is much more resilient than market pricing has dovishly assumed, causing a hawkish shift.
• Nonetheless, the Riksbank surprised with a 25bp rate cut, but projected that as the terminal rate before hikes start reversing the stimulative setting in 2026.
• Next week’s US payrolls data dominates the calendar, given the potential to break market conviction in an October Fed cut. EA inflation should rise back above the target.

By Philip Rush