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

EA Inflation Drift And Skew Survives

• Euro area inflation exceeded consensus expectations again in February, despite an ongoing drift up in forecasts, although the 2.4% outcome precisely matched our call.
• ECB easing anticipated a drop below target by now, so its disappointment should exceed any relief at the 0.1pp slowing, driven by French energy bills, after four straight rises.
• Wage inflation remains too fast to sustainably achieve the target, which should urge the ECB to slow its easing after cutting on 6 March. We still see June as the last rate cut.

By Philip Rush

EA Resilience Is Perfunctory Problem

• Crashing US surveys in 2025 have looked idiosyncratic, as spurious exaggeration of exceptionalism ends. The ESI corroborates the PMI’s resilience in the euro area.
• Price expectations have been trending further above long-run averages without a one-off shock, suggesting European policy is too loose for this stage of the economic cycle.
• EA unemployment remains lower than a year ago, inconsistent with tight monetary conditions. We still see the ECB’s last cut in June, much sooner than the market prices.

By Philip Rush