Archive

HEM: Jan-26 Views & Challenges

• Hawkish cuts led markets to price less easing, or even hikes, but there was little change in BoE views.
• The MPC is split in the face of wage growth persistently above target-consistent levels but is bias to ease in May.
• Rising unemployment rates may aid the appropriateness of previous cuts if the neutral rate is less elevated.

BoE: Three Camps, Two Votes, 1 Cut

• The MPC’s 5:4 vote split delivered another finely balanced rate cut, but the doves are divided, with only two likely to roll straight into supporting another cut in February.
• Most MPC members favour caution, or an explicitly slower path of rate cuts, which probably means they expect to wait until March or May before easing further.
• The disinflationary evidence may not arrive with pay settlement plans in the new year, or later, so we still see this as the last BoE rate cut. The global policy cycle is turning.

By Philip Rush

UK: Christmas CPI Present For Doves

• UK inflation’s 31bps slowing to 3.15% went far further than expected, with significance raised by the substantial extent and the breadth of downside across divisions.
• However, the news was more concentrated at a component level, leaving the median impulse annualising to 2.3%. We still see underlying pressures driving persistent excess.
• The Governor sought confirmation of disinflation before cutting rates again, so this surprise should secure that move in December, without any commitment to do more.

By Philip Rush

UK: LFS Strengthens Policy Division

• Doves and hawks on the MPC will find support for their views in the UK labour market data. It should strengthen divergent views in December, not resolve disagreement.
• Another rise in the unemployment rate and a shocking spike in redundancies can feed dovish fears that activity in the labour market is breaking into disinflationary weakness.
• Hawks can see another round of upwards revisions to wages, driving surprise persistence again. Total pay’s trend is stable in recent years, and regular pay is sticking too high.

By Philip Rush