United Kingdom
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February 18, 2025 7:56 AM UTC
There is little in the latest UK labor market numbers that will ease any concerns of the BoE policy hawks. Admittedly, inactivity and vacancies fell, both suggesting some easing in the labor market, although the former is as suspect as the (still apparently rising) ONS employment numbers due to qu
February 17, 2025 10:28 AM UTC
· President Trump’s executive order on reciprocal tariffs has not produced much market reaction, both as the proposals will not be delivered to the president until April 1 and the process of Commerce/U.S. Treasury and Homeland Security input is seen reducing the odds of penal tariffs.
February 13, 2025 12:33 PM UTC
European politicians are surprised and angry at the U.S. stance on a peace deal for Ukraine and less military support for Europe, but eventually they will have to accept the new reality. Europe is too divided to provide security guarantees to Ukraine on its own. A further increase and acceleration
February 13, 2025 7:58 AM UTC
GDP data for the end of 2024 very much surprised on the upside albeit still failing to convey an impression of UK’s economy displaying solidity, if not strength. Admittedly GDP rose by 0.4% m/m in December, the largest such gain in 11 months (Figure 1) and enough to have allowed Q4 see growth of
February 12, 2025 10:27 AM UTC
After the surprisingly soft December data, we think January’s CPI numbers will show some bounce back up, albeit the 0.2 ppt rise we envisage to 2.7% being notch below BoE thinking. This will largely reflect more ‘noise’ in volatile services and higher energy inflation both due to fuel price
February 11, 2025 1:23 PM UTC
The 25% Steel and Aluminum tariff could have small to modest adverse inflation and GDP growth impacts on the U.S., but the prospect of reciprocal and more product and country tariffs create trade policy uncertainty/supply chain disruption and paperwork problems. This could amplify the impact of
February 11, 2025 8:30 AM UTC
The ECB staff forecasts on March 6 will be revised upwards for 2025 and 2026, due to the surge in wholesale gas prices. However, the ECB will likely take the view that 2 round effects from higher gas prices on balance are unlikely to boost core inflation (especially given wage tracker softness) an
February 6, 2025 1:57 PM UTC
The latest set of BoE forecasts are notable for one major thing – an assumption that underlying growth has fallen, possible to under 1%. This does not explain all of the higher inflation profile (Figure 1) which now only delivers a below target outcome into 2028 – the higher rates projected th
February 4, 2025 4:26 PM UTC
Recent data add to already-growing questions about the UK’s economy’s apparent solidity, if not strength, as seen in sizeable q/q gains in the first two quarters of the year. And those questions may be accentuated by the looming December GDP data where we see a flat m/m reading but, combined w
January 28, 2025 1:46 PM UTC
Back in early December, BoE Governor Bailey suggested very openly in an FT interview that highlighted that the market path in the November forecast was conditioned on four rate cuts this year, this largely a result of inflation having come down “faster than we thought it would.” And while the
January 16, 2025 11:05 AM UTC
BOE QT is 3.4% of GDP and means the 2025 total funding is 8% of GDP, which helps explain part of the current pressure on gilt yields (here). This pace is unlikely to change before the BOE review in September 2025, but the QT is partial monetary tightening and will offset some of 125bps of BOE rate
January 16, 2025 7:46 AM UTC
The latest set of GDP data add to already-growing questions about the UK’s economy’s apparent solidity, if not strength, as seen in sizeable q/q gains in the first two quarters of the year. As we envisaged, November saw a bare almost-0.1% m/m rise, this came after October saw a second successi
January 15, 2025 7:47 AM UTC
Amid current bond market ructions, which some are suggesting reflects stagflation worries, we think that looming December UK CPI data may help dispel some of the inflation aspect of those concerns. Indeed, with markets are looking for the headline rate to stay at November’s 2.6% outcome, the act
January 10, 2025 3:20 PM UTC
The last set of GDP data add to questions about the UK’s economy’s apparent solidity, if not strength, as seen in sizeable q/q gains in the first two quarters of the year of 0.7% and 0.5% respectively. As we envisaged, October saw a second successive m/m drop of 0.1%, well below expectations,
January 10, 2025 11:55 AM UTC
Amid current bond market ructions, which some are suggesting reflects stagflation worries, we think that looming December UK CPI data may help dispel some of the inflation aspect of those concerns. Admittedly, markets are looking for the headline rate to nudge up a notch, although we look for a st
January 10, 2025 8:10 AM UTC
· UK Gilts have been dragged higher by rising Treasuries and market concerns that BOE rate cuts will be limited (here), while 10yr Bund yields have also been dragged higher by Treasuries concerns on Fed rate cuts/budget deficit and tariffs. Multi quarter we see this as overdone. We
January 9, 2025 9:40 AM UTC
· 10yr Gilts yields are rising on concerns of UK fiscal slippage, but also higher U.S. yields and funding pressures as GBP100bln of BOE QT adds to the budget deficit targeted at 4.5% of GDP in 2024/25. Chancellor Reeves will likely recommit to the fiscal rules (ie further small correc
January 6, 2025 8:10 AM UTC
· For financial markets, 2025 will likely be a game of two halves. US exceptionalism will likely drive US equities to extend outperformance in H1, while the USD rises further as tariffs (threats and actual) escalate. However, 10yr U.S. Treasury yields will likely push higher in H2, which can
December 24, 2024 8:30 AM UTC
The U.S. economy’s momentum remains reasonable before the impact of President-elect Trump’s policies in 2025 and 2026. While high uncertainty exists on the scale and timing of policy, the strategic bias is clear – sizeable tax cuts that will boost the budget deficit; tariffs (threats
December 20, 2024 8:28 AM UTC
· Bottom Line: Recent strong US data has bolstered the USD, with the Trump election victory also supportive due to expectations of tax cuts and tariffs which are seen leading to less Fed easing than previously expected. While we still see the USD weakening through 2025 as Fed easing red
December 19, 2024 2:12 PM UTC
· In the UK, perhaps the main story in our outlook is that we retain our below-consensus GDP picture for next year, with growth of 1.0% and with downside risks. The BoE will likely ease further through 2025 by at least 100 bp and maybe faster and beyond.
· As for Sweden, d
December 19, 2024 12:54 PM UTC
An expected unchanged decision left Bank Rate at 4.75% but what was not foreseen was three dissents in favor of a cut with a further member advocating a more activist strategy (presumably ahead). Overall, the BoE adhered to a gradual approach to removing monetary policy restraint remains appropria
December 19, 2024 12:07 PM UTC
• 2yr U.S. Treasury yields can decline initially as the Fed finishes easing (Figure 1), but as the sense grows that the rate cut cycle is stopping, we see the 2yr swinging to a small premium versus the Fed Funds rate – as the market debates the risks of a future tightening cycle. For 10y
December 19, 2024 9:25 AM UTC
· The U.S. economy momentum remains reasonable before President elect Trump’s policies impact in 2025 and 2026. While high uncertainty exists on the scale and timing of policies, the strategic bias is clear – sizeable tax cuts that will boost the budget deficit; tariffs (threats
December 18, 2024 1:23 PM UTC
The U.S. economy’s momentum remains reasonable before the impact of President-elect Trump’s policies in 2025 and 2026. While high uncertainty exists on the scale and timing of policy, the strategic bias is clear – sizeable tax cuts that will boost the budget deficit; tariffs (threats
December 18, 2024 10:05 AM UTC
· The glory days of exceptionalism for U.S. equities will likely extend in Q1 2025 to bring the S&P500 to 6200-6300. The problem is that valuations have now become stretched with S&P500 ex magnificent 7 on a forward P/E of 19 and valuations out of line with real bond yields (Figure 1)
December 18, 2024 7:51 AM UTC
While exceeding both our and BoE thinking, November CPI inflation jumped 0.3 ppt to 2.6%, actually an eight month high. Services inflation remain ned at 5.0% while the core rose 0.2 ppt to 3.5%, also exceeding Bank projections (Figure 1). The data comes after more cost pressure worries were fann
December 13, 2024 7:41 AM UTC
The latest GDP data add to questions about the UK’s economy’s apparent solidity, if not strength, as seen in sizeable q/q gains in the first two quarters of the year of 0.7% and 0.5% respectively. As we envisaged, October saw a second successive m/m drop of 0.1%, well below expectations, this
December 11, 2024 12:27 PM UTC
While they may not affect the overall BoE verdict on Dec 19, which looks very likely to be a pause after last month’s 25 bp cut (to 4.75%), forthcoming data may very well influence the MPC vote and the message in the updated Monetary Policy Summary. In particular, CPI data (Dec 18) may have some
December 4, 2024 11:09 AM UTC
There are increasing questions about the UK’s economy’s apparent solidity, if not strength, as seen in sizeable q/q gains in the first two quarters of the year of 0.7% and 0.5% respectively. However, GDP growth has been positive in only two of the last six months of data and worth a cumulative
November 25, 2024 12:05 PM UTC
Without much detail, Deputy Governor for Monetary Policy Lombardelli set out the Bank's plan to implement the Bernanke Review. The details were few and far between, save to say that scenario analysis will be more important and has already been addressed somewhat, with the aim was to help think abo
November 21, 2024 7:06 AM UTC
Much uncertainty still exists on policy but in 2025 the EU will likely be under pressure from targeted new tariffs by the Trump administration, while also being asked to spend more on defense spending. Purchasing extra LNG and military hardware from the U.S. is one way towards a potential trade de
November 20, 2024 7:42 AM UTC
Coming in higher than expected and a notch above BoE thinking, CPI inflation jumped to 2.3% in October. Helped by a fall in fuel prices and airfares, amplified by base effects, alongside some belated broader softening in services costs, UK inflation had dropped to 1.7% in the September CPI (from 2.2
November 18, 2024 12:40 PM UTC
To suggest that the disappointing Q3 GDP data is largely down to apprehension about the Budget presented at the end of October is incomplete at best and misplaced at worst. After all, monthly GDP data suggest that the economy has not grown since May and by only 0.2% since March. These numbers ar
November 15, 2024 7:58 AM UTC
The latest data, including that for the Q3, very much questions the UK’s economy’s apparent solidity, if not strength, as apparently seen in sizeable q/q gains in the first two quarters of the year of 0.7% and 0.5% respectively. Indeed, GDP growth has been positive in only two of the last six
November 13, 2024 11:51 AM UTC
Helped by a fall in fuel prices and airfares, amplified by base effects, alongside some belated broader softening in services costs, UK inflation dropped to 1.7% in the September CPI (from 2.2%), thus falling below target for the first time since April 2021. This drop was greater than expected and
November 12, 2024 12:27 PM UTC
To suggest that the UK labor market is merely getting less tight misses the point entirely. Amid continued reservations about the accuracy of official labor market data produced by the ONS, alternative and very clearly more authoritative data on payrolls suggest that employment is continuing to co
November 8, 2024 8:02 AM UTC
Much has been made of the UK’s economy’s apparent solidity, if not strength, so far this year given sizeable q/q gains in the first two quarters of the year of 0.7% and 0.5% respectively. But this may have been something of a flash in the pan, not least as GDP growth has been positive in only
November 7, 2024 1:43 PM UTC
In what was something of a more hawkish assessment and outlook, the BoE nevertheless delivered the expected further 25 bp Bank Rate cut to 4.75% with only one (expected dissent against. But after what had been hints of a possibly more policy activism from Governor Bailey last month, the MPC instea
November 4, 2024 12:07 PM UTC
As with several recent BoE verdicts, the Nov 7 policy decision will be more important for what is said, than done, especially as it seems that even a further projected undershoot of the inflation target may not placate the MPC hawks! A 25 bp cut to 4,7% seems highly likely but the question is whet
October 30, 2024 3:24 PM UTC
Despite a focus on hefty tax rises of some 1% of GDP, the Budget also sees borrowing rise by a similar amount so that a sizeable surge in government spending mean this is one of the largest fiscal loosenings in recent decades. But the boost to GDP growth is temporary and modest and where any impro
October 28, 2024 9:35 AM UTC
The UK government is leaking parts of the October 30 budget to allow markets to adjust before the full announcement. While the new fiscal rule for debt/GDP could raise some modest concerns over increased supply for the gilt market initially, attention will quickly switch to the BOE November 7 and
October 21, 2024 11:30 AM UTC
With speculation that the Chancellor faces a £ 40 bln funding gap which will be addressed largely through tax rises, it seems as if the UK economy faces a larger fiscal tightening than was planned under the previous government. However, with promoting growth the policy priority, the Chancellor is