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 17, 2024
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EA Inflation Subdued Enough for the ECB

  • The final EA HICP inflation print confirmed the downside surprise to 2.4% from the flash release. Progress gets more challenging as energy and food base effects wear out.
  • Although services inflation is stuck at 4%, that is far better than the UK’s 6%, and the median inflationary impulse is broadly settling below the ECB’s target.
  • Labour costs might remain inflationary, but the ECB seems to have sufficient confidence to cut in June unless the data surprise significantly to the contrary.

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

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