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HEM: Dec-25 Views & Challenges

• Volatile markets and policy guidance washed out, with pricing and forecasts little changed on the month.
• Bailey is biased to ease, but the BoE is awakening to its inflation problem. It should cut less than dovishly priced.
• Higher unemployment could move beyond a structural shift from policy to signal a less elevated neutral rate.

EA: Unsatisfying disinflationary snack

• Slower food price inflation nibbled the EA rate down to 2.1% in October, while services increased to their fastest pace since April. Labour costs are still rising too fast.
• Underlying inflation metrics are broadly a bit beyond target, risking a slight overshoot in the medium term, but the median impulse is reassuring, weighed down by France.
• Energy prices are set to bump inflation around the target in 2026, averaging above the consensus in our view. The ECB would need tightness elsewhere to shift rates, though.

By Philip Rush

HEM: Nov-25 Views & Challenges

• Pushback by Powell and peers trimmed some excessively dovish pricing, but the BoE converged down on poor data.
• The BoE should also resist pressure as underlying issues are unbroken by relatively marginal recent payback.
• We now see markets overpricing easing most in the UK. More weakness is needed to signal a threatening trend.

ECB: Less Downside From The Good Place

• Downside activity risks have reduced, while the inflation outlook holds steady, keeping the ECB in its “good place” despite an implied shift up in the balance of risks.
• Upside risks while inflation is seen settling at 2% would imply a hawkish bias, which the ECB isn’t ready to convey. But the skew may have swung within insignificant margins.
• We still expect no more ECB rate cuts this cycle. If underlying inflation fails to slow as hoped, the ECB’s balanced bias could easily break into a hawkish one in 2026.

By Philip Rush