Archive

ECB: Meaningfully Less Restrictive

• The ECB’s sixth 25bp deposit rate cut to 2.5% was unsurprising, and its characterisation of policy as meaningfully less restrictive leaned towards our relatively hawkish view.
• Policy rates may already be close to neutral. Looser fiscal policy plans also pressure monetary policy to follow a tighter path than would otherwise have been necessary.
• We still expect the ECB to hold rates in April, which is no longer a controversial call. A final 25bp ECB cut in June remains in our outlook (BoE cuts in May and Fed on hold).

By Philip Rush

US vs EU Part 4: Orwell That Ends Badly

• Amid all the transatlantic rumpus over Russia/Ukraine last week, of more significance to markets is Donald Trump’s 27 February threat to impose 25 percent tariffs on all European imports. The UK should not assume it is immune to this despite Keir Starmer playing the ‘king’s gambit’.

By Alastair Newton

HEM: Pausing Policy Easing

• Central banks should slow, pause, or stop cutting rates
• Inflation revisions are drifting up and surprising higher
• Labour cost rises remain above target-consistent levels
• Activity trends signal monetary policy as nearly neutral
• Rate hikes in 2026 could reverse unnecessary easing

EA Inflation Drift And Skew Survives

• Euro area inflation exceeded consensus expectations again in February, despite an ongoing drift up in forecasts, although the 2.4% outcome precisely matched our call.
• ECB easing anticipated a drop below target by now, so its disappointment should exceed any relief at the 0.1pp slowing, driven by French energy bills, after four straight rises.
• Wage inflation remains too fast to sustainably achieve the target, which should urge the ECB to slow its easing after cutting on 6 March. We still see June as the last rate cut.

By Philip Rush