Archive

UK: Spurious H1 Surge Again

• GDP’s resurgence caught the consensus off guard, as it failed to recognise the residual seasonality still skewing activity growth into the first half of the year.
• The 0.7% q-o-q outcome for Q1 matched our forecast and leaves a powerful carry-over to Q2, where GDP seems set to exceed the BoE’s 0.1% forecast at about 0.4% q-o-q.
• Strength discourages another policy rate cut. Disappointment in H2 is the hangover, but we doubt it will motivate renewed easing amid excessive price and wage inflation.

By Philip Rush

UK: Tax Not Breaking Cost Pressures

• Underlying unemployment rates are broadly stable, despite higher headline and underemployment rates, where the latter lacks relevance to disinflationary pressures.
• Activity levels are expanding healthily and redundancies fell in April, suggesting no substantial jobs impact from the NICs rise, contrary to dovish fears.
• Wage growth should slow to accommodate some of the tax cost increase, but there isn’t much evidence yet. Total pay growth is little changed in recent years.

By Philip Rush

BoE Closer To Slowing Cuts

• The shockingly divided MPC’s offsetting votes weren’t the most hawkish signal alongside its 25bp rate cut. Most of the five backing it were only recently convinced.
• Maintained guidance for a gradual and careful approach not only disappoints dovish hopes, but signals a 5:2:2 bias between a slower, constant and faster pace of cuts.
• We still expect this gradualism to help the BoE resist cutting in August (and June) while waiting for dovish evidence that never emerges, making this the last cut.

By Philip Rush

HEM: Dovish Prices Deranged

• Activity remains surprisingly strong, defying dovish fears
• Labour markets are tight, and manufacturing is stable
• Underlying price and wage inflation is still too high
• Rates underrepresent the rebounding risk sentiment
• BoE cut pricing ahead of the Fed looks the most deranged