Archive

August 19, 2025
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EA: Re-Balance Of Payments

  • An end to the Euro’s bullish trend is now revealed to have coincided with a reversal of two critical supports. Frontloaded export levels have normalised without payback.
  • International portfolio investment into the EA during April fully unwound between May and June, revealing no investor appetite to hold higher allocations to EA assets.
  • The Euro is not benefiting from a structural shift towards it, so we doubt the bullish trend will resume. Belated payback in goods inventories could also eventually weigh.

By Philip Rush

August 18, 2025
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UK Excess Inflation Expectations

  • The upwards trend in consensus inflation forecasts reflects persistent excess effective expectations supporting wages amid policymakers’ failure to re-anchor at the target.
  • Easing on the assumption of success predictably negated the required conditions, so we forecasted the problem. Nonetheless, expectations were also stickier than we assumed.
  • Without renewed progress, wage growth should keep trending above the BoE’s forecast, discouraging further rate cuts. Hikes may even be needed in 2026 to break excesses.

By Philip Rush

August 14, 2025
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UK: Slowdown Softened In Q2

  • June’s remarkable rebound compounded the resilience revealed by April’s upwards revision, which also broke flimsy fundamental stories blaming tariffs for a slowdown.
  • IP no longer declined in April, but the broader growth profile still matches the residual seasonality that spuriously drives GDP dynamics in our forecast. H2 will be weaker.
  • The BoE discounts headline GDP volatility without blaming seasonality, so another surprisingly strong quarter will be hard for hawks to ignore, reducing the rate cut risk.

By Philip Rush

August 13, 2025
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BoE: Policy Mistake Diagnosis

  • Inflation expectations have been persistently too high, while productivity trends poorly, driving wage and price inflation forecasts to grind higher in recent years.
  • The BoE’s cutting cycle contributed to reversing the trend decline in expectations, and in turning a slight overshoot into a massive one, with a 3.2pp revision since Feb-23.
  • We forecasted this excess for these reasons, so it was predictable and therefore a policy mistake to cut so soon. Further surprise should prevent the MPC from cutting again.

By Philip Rush

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