Archive

February 01, 2024
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BoE Backloads Cuts Spilling Out Too Early

  • The BoE held the Bank rate at 5.25%, with two favouring a hike and one for a cut. It dropped the hawkish bias, instead focussing on how long to stay on hold.
  • Reading between the BoE forecasts conditional on unchanged and market rates suggests the optimal assumption would be to wait longer than priced to cut, then go harder.
  • It wants to see the persistent pressures fade, but we expect that to take longer, with the labour market not slackening so swiftly. That delays the first cut to 2025 in our call.

By Philip Rush


February 01, 2024
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EA: Inflation Sails Smoothly Downstream

  • Flash EA inflation matched consensus expectations for the first time since Jul-23 as it slowed by 18bps to 2.75%. The level is close to views held throughout the past year.
  • Services inflation remains uncomfortably persistent for the ECB and little changed at 3.98% in Jan-24. High wage inflation is stoking this domestic inflationary source.
  • The ECB wants to see more progress in the disinflationary process before cutting. Sticky service prices don’t help that, further damping the likelihood of an imminent rate cut.

By Philip Rush