Archive

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

UK Prices Surge Into 2025

• UK CPI inflation jumped 0.2pp beyond expectations to 3% y-o-y in January amid broadly excessive price rises, to the extent that the median annualises at almost 6%.
• Underlying pressures have been trending higher since easing began, and the headline rate is set to keep rising, albeit with little change before the BoE’s likely cut in May.
• Demand growth keeps unemployment low, suggesting monetary conditions are too loose for tight cyclical pressures. We expect rate hikes in 2026 to reverse premature cuts.

By Philip Rush

UK: Hawkish Alignment As 2024 Ends

• Unemployment’s rising trend was a dovish crutch broken by stability in December, with the turn in underlying changes repeating the hawkish patterns after Jul-23 and Feb-24.
• An intensification of wage growth to 0.7% m-o-m extended its hawkish trend to return the annual rate to around 6%, meaning no progress on where it started the year.
• Payback in unemployment follows that in GDP, bringing the data to a more consistently hawkish position at the end of 2024. We still only expect a final BoE rate cut in May.

By Philip Rush