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August 18, 2025
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UK Excess Inflation Expectations

  • The upwards trend in consensus inflation forecasts reflects persistent excess effective expectations supporting wages amid policymakers’ failure to re-anchor at the target.
  • Easing on the assumption of success predictably negated the required conditions, so we forecasted the problem. Nonetheless, expectations were also stickier than we assumed.
  • Without renewed progress, wage growth should keep trending above the BoE’s forecast, discouraging further rate cuts. Hikes may even be needed in 2026 to break excesses.

By Philip Rush

August 15, 2025
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HEW: Wrong Policy Turnings

  • As soon as a data point calms nerves around a theme, a hawkish challenge seems to appear. This week, that was US CPI into PPI and UK unemployment into GDP.
  • A bias to ease, triggered by a one-touch round of bad news, has consequences when not sustained. The BoE’s early start to its easing cycle has proved to be a policy mistake.
  • Next week is a prime opportunity for Chair Powell to calm dovish excitement about Fed easing. UK inflation seems set to rise by another tenth, while the EA rate sticks at 2%.

By Philip Rush

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