Archive

January 23, 2025
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GBP Depressed By Fiscal Risk Premium

  • UK government spending and deficits have attracted unwelcome attention amid falling sterling and bond prices. Yet long-term rate moves match US and short-rate shifts.
  • Sterling weakness defies relative rate moves, suggesting a risk premium worth about 4%. About 1.5pp of that premium is probably US trade policy, with the rest UK-specific.
  • Donald Trump should sustain his threats against the EU but could be softer with the UK. Fiscal risk will likely extend beyond the 26 March Budget amid tough talk, not action.

By Philip Rush

January 21, 2025
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UK Pay And Participation Are Rising

  • A renewed rise in the UK unemployment rate took it to 4.4% despite employment hitting record highs. Participation among older people has reversed much of its pandemic fall.
  • The underlying UR trend also increased, making this change look genuine. Nonetheless, the past two similar occasions proved extremes, with the UR falling a few months later.
  • Rapid pay growth might have encouraged labour force participation. The direct inflation effect should dominate the second-order slack story, but the BoE will probably cut.

By Philip Rush

January 20, 2025
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US vs EU

  • European leaders are underestimating Donald Trump’s animus towards the EU and his readiness to do Europe down as part of his zero-sum MAGA agenda. Spurred by the tech titans, he will target the EU’s regulatory strength and trade. Europe’s likely response remains uncertain.

By Alastair Newton

January 17, 2025
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Inflation Peak From Festive Germany

  • The final Euro area inflation print for December confirmed the headline rise to 2.4%, albeit with energy contributing a bit more, offset by even less from food prices.
  • Germany drove the rise amid much higher package holiday prices this year. Its median increase also remained too high, almost matching the UK's above 3% annualised.
  • December still looks set to be the peak. Falls in the following two months may not be enough to regain the target as services inflation persists at uncomfortable heights.

By Philip Rush

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