March 16, 2023
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ECB: Delivering the Required Hikes

  • The ECB delivered another 50bps rate hike, as promised in February and expected. It is not allowing Silicon Valley Bank’s broadly irrelevant failure to break its focus.
  • Higher core inflation forecasts extend the problem and necessitate a tight monetary setting to break excessive pressures. ECB policy will rightly be data-dependent.
  • We forecast 25bp deposit rate hikes in May and June, with risks skewed towards further steps if resilience outlives the current financial stability issues.

By Philip Rush

March 15, 2023
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UK: Imagining Spurious Fiscal Space

  • The UK Budget cancelled energy price hikes, as expected. Investment and pension allowance reforms neutralise borrowing changes between 2024 and 2026.
  • Residual fiscal space beyond that is politically desirable to keep for a pre-election giveaway. However, it may not exist outside of the OBR’s imagination.
  • Sustained brisk potential growth creates excess supply in the OBR view of 1Q23. Without that, GDP and revenues will underperform, further prolonging high debt issuance.

By Philip Rush

March 14, 2023
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UK: Data Issue Hawkish Reminder

  • The UK unemployment rate remained at 3.7% again in Jan-23. Ongoing resilience amid high vacancies indicates it may resist rising in Q1, extending cyclical excesses.
  • Inflated pay settlements continue to drift higher, with over 70% exceeding 4% in January and signs of anchoring around 5%. Such pressures remain far too high.
  • Silicon Valley Bank’s smooth failure is unlikely to break excesses in the UK, so the BoE still has more work to do, with another two 25bp rate hikes in our unchanged view.

By Philip Rush