Archive

HEM: Rolling Resilience

• Activity remains resilient, and labour markets are tight
• Underlying price and wage inflation mostly track >2%
• Doves assume this regime breaks, but it isn’t happening
• Cuts can keep rolling later and may never materialise
• Rate hikes are more historically usual after pausing

BoE Surveys Sustain Resilience

• The Decision Maker Panel and Credit Conditions Surveys remained resilient. Price and wage inflation are stuck at excessive levels, and US trade policy makes little difference.
• Default rates are falling while the availability and demand for credit are rising to reveal a loosening of monetary conditions. There is no evidence of policy being too tight.
• Inflation and labour market data matched BoE forecasts from May, when most members were biased to slow easing. Resilient surveys should discourage it from cutting again.

By Philip Rush

Growth Broadly Back In The Black

• PMI recoveries extended in June, taking averages above 50 as manufacturing is its strongest since Sep-22, and services almost align with its averages of recent years.
• The UK survey balances suffered from bad vibes, so they are the primary beneficiary of sentiment improving. Their recovery can extend further as vibes improve.
• Broad expansion helps labour demand to keep pace with supply, denying doves proof of a disinflationary demand shock. Without that, cuts roll later and may not resume.

By Philip Rush

BoE Still Seeking Evidence

• Guidance around an unsurprisingly unchanged BoE rate preserved the necessary uncertainty about when it might ease again, albeit with a broad bias to do more later.
• Dave Ramsden joined the dovish dissent, taking it to three for a 25bp cut, but none of them are in the MPC majority revealed in May as leaning towards a slower pace of cuts.
• We believe the August decision remains finely balanced for the majority. Ongoing data resilience, discouraging the Fed and ECB from easing, should also keep the BoE on hold.

By Philip Rush