Archive

UK: Poor Productivity Paradigms

• The OBR looks likely to trim its productivity trend assumption to 1%, which would still be a bullish break from the current stagnation. Trends rarely break outside recessions.
• High taxes are squeezing the most productive and being transferred to the inactive. It should not be surprising that the UK’s political choices have stalled productivity.
• We see no reason to think the UK will pull off an internationally exceptional jobs-light boom from here. Ongoing stagnation would extend the UK’s rule for fiscal slippage.

By Philip Rush

HEM: Oct-25 Views & Challenges

• Hawkish inflation and policy rate pricing shifts toward our UK/EA view did not stop US rates frontloading more cuts.
• We still see markets overpricing easing, with UK inflation expectations stuck above target, and neutral rates high.
• A break in activity data, especially unemployment, and underlying price/wage inflation, would threaten our view.

EA: Rounding Jobs For Migrants

• A surprise rise in EA unemployment reflects rounding rather than alarming weakness, with labour supply and demand still surging. Finland’s woes are more idiosyncratic.
• Supply has trended much faster post-pandemic, sustaining demand at its old trend without extreme capacity constraints. Migration has more than accounted for the rise.
• Ukrainians are dominating the flow and complicating the read through to disinflationary spare capacity. Wage growth is an even more critical signal when supply is uncertain.

By Philip Rush

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