Archive

April 18, 2024
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BoE Should Move Behind the Fed and ECB

  • Hawkish surprises in the UK and US data pushed back rate cut pricing. Dovish comments from Bailey still weigh on BoE rates, inappropriately keeping pricing below the Fed.
  • Underlying inflationary pressures are worse in the UK, where wage growth is persistently high and not backed by productivity, causing the UK’s services inflation to be higher.
  • Prevailing policy settings don’t seem set to drive down UK inflationary pressures before the US. Unemployment is trending similarly, suggesting similar monetary tightness.

By Philip Rush

April 17, 2024
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UK Stuck With High Services Inflation

  • UK CPI inflation exceeded the consensus by 0.1pp as it only slowed to 3.2% in March, as we forecasted. Services inflation stuck at 6%, and high-frequency impulses increased.
  • Persistently high pay settlements sustain wage and underlying price inflation above target-consistent levels. We only see services slowing below 4.5% in September.
  • We expect the BoE to cut in November after the ECB and Fed. Further resilience in UK and global data could still cause all three to roll back even further.

By Philip Rush

April 16, 2024
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UK Paying More for Fewer Workers

  • UK unemployment jumped surprisingly far in February 2024 to hit 4.2% as employment fell. More long-term jobless suggests this is neither a new shock nor too disinflationary.
  • Average earnings growth surged by 0.7% m-o-m, meaning the wage bill still rose despite fewer jobs. Regular pay growth is in rude health at 6% y-o-y or 2.1% in real terms.
  • Wage settlements are stuck at 5%, with a skew higher into April. Embedded inflation expectations are too high and demand tight policy despite some cyclical softening.

By Philip Rush

April 11, 2024
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ECB Loosely Tied to Cut in June

  • The ECB maintained its policy rates and did not pre-commit to a June cut. However, a few members wanted to cut now, and the statement added explicit conditionality.
  • Guidance now ties the ECB to a June cut, albeit with ongoing data dependence preserving wriggle room. Sticky services inflation and Fed rates won’t stay its hand.
  • Resilient data are rolling back Fed views to our September call, but we now doubt the ECB will want to delay past June. The BoE would probably only then wait until Nov-24.

By Philip Rush

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