Archive

BoE Survey Says Stagflation Survives

• CFOs keep telling the BoE their prices will rise by 3.5% in 2026, with wage increases similarly substantial. There has been no significant break lower in over 18 months.
• Employment plans have also deteriorated, lending some support to the dovish case as well. But this side is an unreliable signal, while inflation has proved brutally accurate.
• Doves need the employment aspect to be true, but the transmission to prices not to be. This survey signals upside inflation risks that should discourage rate cuts in 2026.

By Philip Rush

Activity Thaws Into Winter

• The worst services PMIs thawed in November, broadening growth even as averages held steady. Activity in the US services ISM has trended up to exceed the PMI data now.
• A slight fading of stagflationary pressures in the latest US surveys probably balances out in the Fed’s policy trade-off. We still fear that it is easing excessively.
• Rising unemployment rates in the US and UK are concerns not experienced in most of the world. This theme feeds their recent divergence from the global surprise tendency.

By Philip Rush

HEM: Dec-25 Views & Challenges

• Volatile markets and policy guidance washed out, with pricing and forecasts little changed on the month.
• Bailey is biased to ease, but the BoE is awakening to its inflation problem. It should cut less than dovishly priced.
• Higher unemployment could move beyond a structural shift from policy to signal a less elevated neutral rate.

UK Backloads A Tax Trap

• The UK’s fiscal hole was even smaller than we thought (£6bn), allowing the government to backload a fiscal tightening that is unsurprisingly focused on tax increases.
• Delaying prudence to an election year is implausible. There will be a substantial deficit in 2029-30, not the current budget surplus in the OBR forecasts based on existing policy.
• Labour is setting up a tax trap for Reform and the Conservatives to say how they’d avoid tax increases, similar to the backloaded spending cuts they myopically ignored in 2024.

By Philip Rush