Archive

UK: Unseasonably Resilient In Q3

• Slight growth in August sustains an above trend level of activity and is tracking to a 0.2% q-o-q pace for Q3, matching our forecast and the consensus, but disappointing the BoE.
• The ongoing slowdown in service sector activity repeats residual seasonality that would leave a trough in two months, but there is slightly more resilience this year.
• Policymakers shouldn’t react to statistical noise, and are unlikely to amid ongoing excesses in underlying inflation that a stabilising labour market wouldn’t break.

By Philip Rush

UK: Mixed Messages On Labour Market

• Most narratives can find some support in the latest labour market report, preserving uncertainty that should keep the BoE on hold at least until some clarity emerges.
• Unemployment has increased (LFS) or stabilised (payrolls), while pay is shockingly resurgent (inc-bonuses), slowing as expected (ex-bonus) or stagnating (private pay).
• Weakness isn’t as clear as the consensus and press sometimes make out, but concerns aren’t invalidated. We still expect resilience to preserve excess inflation hawkishly.

By Philip Rush

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.