Archive

March 26, 2025
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UK Fiscal Smoke Over Treading Water

  • Attempts to recreate fiscal headroom after slippage rely on implausible and optimistic assumptions. Further tax rises and delayed prudence are likely in the Autumn budget.
  • Replacing aid resources with capital defence spending helps loosen fiscal policy inside the budgetary rules. Policy changes are relatively neutral over the next few years.
  • Without corrective action, the gross financing requirement path is £18bn a year higher than in the Autumn, and almost £50bn higher than last Spring, burdening gilt issuance.

By Philip Rush

March 24, 2025
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PMI Spring Vibe Shifts

  • A resurgence in the US and UK services PMIs seems inconsistent with renewed dovish pricing that assumes activity weakness. Vibes may be throwing surveys beyond reality.
  • Labour demand growth seems to be trending close to supply, signalling monetary conditions close to neutral. That is broadly the story across a broad basket of countries.
  • We still believe rate pricing is too dovish for the Fed and, to a lesser extent, the BoE. Noisy survey vibes and spurious assumptions of tightness are likely to be misleading.

By Philip Rush

March 20, 2025
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UK: Tight Jobs Market Persists Into 2025

  • Unemployment remained at 4.4% in January amid rapid employment growth. Recent data suggest that the unemployment rate will likely decline over the next few months.
  • Regular wage growth adhered to its 0.4% m-o-m trend. The headline is near 6%, leaving no progress over the past year. Financial sector bonuses weigh temporarily on total pay.
  • Doves can temporarily dismiss this inconvenient resilience as unreliable noise, but the obvious risk is that it’s genuine and monetary stimulus has already become excessive.

By Philip Rush

March 20, 2025
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BoE Dove Beaten Into Submission

  • The BoE unsurprisingly held its policy rate at 4.5% in March, preserving its gradual easing path after resilient recent data. Only one MPC member dissented for a 25bp cut.
  • Catherine Mann did not carry the extra 25bp of easing she supported from February to March. Her hyperactive vote relied on so little spurious evidence it was swiftly falsified.
  • Core members emphasise the lack of a predetermined path, raising the hurdle to a May cut, but this remains the most likely outcome, even if it may require a rapid reversal.

By Philip Rush

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