UK Labor Market: Now not Less Tight but Genuinely Loose

June 27, 2025 8:30 AM UTC

It is clear(er) that the labor market is the key variable that the BoE is looking at to assess policy amid a backdrop where the official view is that current demand weakness may not be creating much, if any, slack as the supply side is equally anaemic.  In this regard, it is also clear(er) that the

Continuum Economics Calendar July 2025

June 26, 2025 1:00 PM UTC

Data and Events Calendar July 2025.

June Outlook: Trump’s Fluid Policies

June 25, 2025 10:00 AM UTC

All chapters of the June Outlook are now available and simply click the link below. 

Outlook Overview: Trump’s Fluid Policies

June 25, 2025 7:20 AM UTC

·       President Donald Trump still wants to use the tariff tool, and we see the eventual average tariff rate being in the 13-15% area, lowered by deals but increased by more product tariffs. Any lasting legal block on reciprocal tariffs will likely see the administration pivoting towards ot

Equities Outlook: Choppy Then 2026 Gains

June 24, 2025 8:15 AM UTC

       Though the U.S. equity market has rebounded, we still scope for a fresh dip H2 2025 to 5500 on the S&P500 as hard data softens further to feed into weaker corporate earnings forecasts and CPI picks up and delays Fed easing.  However, the AI story is still a positive, while share buybacks

DM FX Outlook: USD uncertainty increases as Trump changes the rules

June 24, 2025 7:05 AM UTC

·       Bottom Line: After making initial gains after the election, the USD has followed a similar path to the first Trump presidency, falling back steadily this year as optimism on the economy has faded, with the introduction of tariffs contributing to more negative sentiment. Much as in the

Iran: Measured Next Steps?

June 23, 2025 3:17 PM UTC

  A measured or modest Iran retaliation could be used by the U.S. to seek a path back towards negotiation.  Israel would likely want to continue to degrade Iran nuclear and military facilities, but the U.S. could eventually pressure Israel to stop.  This is our baseline, though the military attac

DM Rates Outlook: Yield Curve Steepening?

June 23, 2025 8:30 AM UTC

•    We see the U.S. yield curve steepening in the next 6-18 months. 2yr U.S. Treasury yields can step down with cautious Fed easing on a modest/moderate growth slowdown and also if the Fed keeps an easing bias in H2 2026. 10yr U.S. Treasury yields face a tug of war between lower short-dated y

Western Europe Outlook: The First Shall be Last…

June 23, 2025 7:46 AM UTC

·       In the UK, we have upgraded 2025 growth by 0.3 ppt back to 1.0%.  But this is purely a result of the Q1 front-loading and instead masks what we think will be essentially a flat GDP profile into 2026. The BoE will likely ease further in H2 by at least 50 bp and maybe faster and then i

BoE Review : Labour Market Softness Triggers a Dovish Hold

June 19, 2025 11:51 AM UTC

A stable BoE policy decision was always the most likely (Bank Rate staying at 4.25%) as the MPC discussed its two alternative scenarios still, but possibly where hawks have been forced into diluting what were previous concerns about a ‘tight’ labor market.  In fact, partly based on what was see

UK CPI Review: Services Inflation Falls Clearly

June 18, 2025 6:40 AM UTC

As for the UK, the main near-term inflation story was (and remains) what would happen after the April data when a series of energy, utility, post office and some other regulated and service price rises fell due, albeit now offset somewhat by a fall in petrol prices.  The result was a notch higher t

BOE QT: Slowdown in September?

June 13, 2025 8:15 AM UTC

BOE QT is part of the reason behind both a steeper yield curve and subdued M4 and lending growth. The MPC in September will likely accept that to avoid impacting the monetary transmission mechanism that annual rundown of gilts needs to be slowed from GBP100bln pa to GBP75bln.  Internal differences

BoE Preview (Jun 19): Splits to Continue?

June 12, 2025 12:57 PM UTC

A stable BoE policy decision next Thursday is most likely (Bank Rate staying at 4.25%) as the MPC discusses various scenarios still, possibly with any hawks diluting what were previous concerns about a ‘tight’ labor market.  In fact, we see two dissents in favor of a 25 bp rate cut albeit where

Trump Tariffs: China and July 9 Reciprocal Deadline

June 12, 2025 7:17 AM UTC

 We attach a 65% probability to a U.S./China reaching a new trade deal that reduces the minimum overall tariff to 15-20% imposed by the U.S., most likely agreed in Q4 2025 and to be implemented in 2026.  However, a 35% probability exist of no deal and this could eventually mean higher tariffs (Fig

UK GDP Review: GDP Overstating Activity Less Clearly But Looking Weaker?

June 12, 2025 6:54 AM UTC

After two successive upside surprises, a correction back in monthly GDP could be expected for the April data, especially as Q1 numbers may have been boosted by added production destined for the U.S in anticipation of tariffs.  In addition, real estate activity seems to have dropped after the raisin

UK CPI Preview (Jun 18): Services Inflation to Fall Clearly?

June 11, 2025 7:03 AM UTC

The UK and the rest of the DM world have been decoupling, at least in terms of inflation, where the UK has undergone a surge, (largely home-grown) just as W European sees their respective inflation fall back to, if not below.  Regardless, as for the UK, the main near-term inflation story was (and r

UK Labor Market – Slack and Divergences Widen

June 10, 2025 7:07 AM UTC

Even the BoE has acknowledged that the UK economy is developing slack and the continued trend rise in activity rates will only serve to reinforce the impression of a labor market that is not so much less tight but decidedly getting looser. As a result, pay pressures seem to be receding (Figure 1) an

UK GDP Preview (Jun 12): GDP Still Overstating Activity?

June 4, 2025 10:20 AM UTC

After two successive monthly upside surprises, a correction back in GDP could be expected for the upcoming April data, especially as Q1 numbers may have been boosted by added production destined for the U.S in anticipation of tariffs.  In addition, real estate activity seems to have slumped after t

Nato Summit 5% Target and Trump

June 3, 2025 10:48 AM UTC

Trump’s natural instincts will likely see extra pressure applied on Europe in the coming weeks to commit to 5%, but we do not see existential threats from Trump.  In the end, our baseline is that NATO will agree a “soft” aim of 5% (3.5% hard military spending and 1.5% infrastructure/cybersecu

Trump’s 50% Steel And Aluminum: Negotiating Leverage?

June 2, 2025 7:42 AM UTC

•    President Donald Trump increase in steel and aluminum tariffs from 25% to 50% is not just about boosting the steel and aluminum industry.  It also a demonstration that Trump remains in control of tariffs and can aggressively change tariffs to increase negotiating leverage.  It is a mess

Tax Foreigners Assets: How To Lose Friends

May 30, 2025 9:12 AM UTC

   Increasing taxes on dividends on U.S. equities and corporate bond coupons would alarm foreign investors and hurt the USD and U.S. equities, as it would amplifies foreign investors concerns that they are overweight U.S. assets and the USD.  Starting a capital war with investors into the U.S. is

Court Stops Trump Reciprocal and Fentanyl Tariff

May 29, 2025 7:18 AM UTC

•    The Trump administration will likely follow a multi-track response by appealing the judgement but also fast-tracking section 232 product tariffs for pharmaceuticals and semiconductors.  The administration could also consider section 301 or 122 tariffs (the latter 15% for 150 days against c

Continuum Economics Calendar June 2025

May 27, 2025 1:00 PM UTC

Data and Events Calendar June 2025.

UK CPI Review (May 21): How Durable a Surge?

May 21, 2025 6:50 AM UTC

The UK and the rest of the DM world are now decoupling, at least in terms of inflation, where the UK is seeing a surge, (largely home-grown) just as W European sees their respective inflation fall back to, if not below, targets – although some measures if underling EZ inflation have started to edg

UK-EU: Getting Back on the (Political) Fence

May 19, 2025 8:54 AM UTC

That the UK has seemingly cobbled together a third trade deal in just over a fortnight is of course more of political importance than economic.  The deal to be detailed later today with the EU will help both sides economy wise but only at the margin – the main factor for the UK being an open-ende

UK GDP Review: Q1 GDP Jumps But Erratic and Overstating Activity

May 15, 2025 7:17 AM UTC

National account data delivered yet another upside surprise both in terms of the latest monthly figure and also the associated Q1 update.  Indeed, February GDP, rather than consolidating in the March GDP release with a flat m/m reading, instead grew by 0.2% (Figure 1), a fifth successive non-negati

Europe Portfolio Leverage Over Trump

May 14, 2025 9:05 AM UTC

The U.S. will likely introduce a 25% tariff on pharmaceuticals, which will increase pressure on the EU and other European countries (e.g. Switzerland) and also delay serious negotiations close to the 90 day reciprocal tariff deadline on July 9, adding to pressure on Europe by deliberately prolonging

UK Labor Market – How Much Slack?

May 13, 2025 9:57 AM UTC

Even the BoE has acknowledged that the UK economy is developing slack and the continued trend rise in activity rates will only serve to reinforce the impression of a labor market that is not so much less tight but decidedly getting looser. As a result, pay pressures seem to be receding (Figure 1) an

Markets: Less U.S. Recession Risk, But Trade Headwinds

May 13, 2025 9:38 AM UTC

Though we had expected a U.S./China trade truce, the terms are more favorable to U.S. growth than we anticipated.  Combined with the UK framework deal, we have revised down the probability of a U.S. recession from 35% to 20%.  In turn we have revised up the end 2025 and end 2026 S&P500 forecasts t

UK CPI Preview (May 21): How Big and Durable a Surge?

May 12, 2025 2:32 PM UTC

The UK and the rest of the DM world are about to decouple, at least in terms of inflation, where the UK faces a surge, (largely home-grown) just as W European sees their respective inflation fall back to, if not below, targets.  Although relegated by current market ructions and tariff threats, the

Trump Tariffs: China and UK Precedents

May 12, 2025 8:02 AM UTC

 The U.S./China have announced major reductions in reciprocal tariffs to 10% with other measures postponed for 90 days.  Though the U.S. is still imposing an extra 20% due to fentanyl, China will likely make some moves that could also help to reduce this.  This is in line with our previous thinki

Household Divergence Into the Downturn?

May 9, 2025 10:55 AM UTC

Overall, the shock faced by the U.S. from tariffs is a negative supply shock, which can then be followed by job losses and restrained income and consumption growth.  This 2 round can be amplified if a hard landing is seen and quickens job losses, which would really hurt low income households. Howev

UK GDP Preview (May 15): Q1 GDP Jumps But Underlying Picture Nearer Zero

May 9, 2025 9:32 AM UTC

We see the surprise and sizeable February GDP jump consolidating in the March GDP release with a flat m/m reading, this coming after that 0.5% jump (Figure 1).  But there are downside risks given the possible (marked) correction back that may occur after what seems to be a very erratic February jum

USD flows: Trump lifts equites and USD, though signals are mixed

May 8, 2025 4:09 PM UTC

The US-UK trade deal is underwhelming, if welcome. Trump’s suggestion that tariffs on China could be lowered if talks scheduled this weekend go well is giving the USD a more significant lift, though Trump continues to give mixed signals, making tariff threats alongside a suggestion that equities b

BoE Review: Divided by Scenarios?

May 8, 2025 1:24 PM UTC

The widely expected 25 bp Bank Rate cut (to a 2-year low of 4.25%) came amid a less dovish rather than a more hawkish assessment than was envisaged beforehand.  While the new Monetary Policy Report MPR) now sees inflation fall below target almost a year earlier than seen three months ago (Figure 1)

Tariff Man

May 6, 2025 8:45 AM UTC

  With the U.S. equity market having rebounded, President Donald Trump instinct on tariffs have seen threats of pharma tariffs and a 100% tariff on non U.S. films. Slow progress is also reported on bilateral deals, despite White House PR spin.  However, Trump will see pressure rising from three so

Markets: China Truce Hopes and More Data

May 5, 2025 8:05 AM UTC

The direction of travel is towards a U.S./China truce followed by postponing/cancelling most reciprocal tariffs and then trade negotiations. While the markets could cheer this as good news, incoming economic data in May and June is the most critical issue.  We still see the U.S. imposing an average

BoE Preview (May 8): Being A Little Less Careful Amid Data Conflicts

May 1, 2025 2:52 PM UTC

It has been relatively clear that MPC divisions have been enough for the BoE to have altered its rhetoric as far back as February to stress the need for policy to be framed carefully as well as gradually.  Indeed, this shift very much pointed to the MPC majority envisaging rate cuts no faster than

U.S. Equities: Vulnerabilities Remain

May 1, 2025 10:25 AM UTC

 We are concerned that valuations remain high and inconsistent with nominal and real government bond yields going into a growth slowdown as tariffs hit the U.S. economy.  Our baseline is for the S&P500 to fall to 5000-5200 mid-year before recovering to 5500 by end 2025. The 10yr budget bill is lik

Continuum Economics Calendar May 2025

April 28, 2025 10:03 AM UTC

Data and Events Calendar May 2025.

US Exit: Lessons From Brexit?

April 28, 2025 8:05 AM UTC

Overall, the U.S. attempt to reshape global trade is unlikely to significantly improve its trade position, but the size and influence of the U.S. may mean it does not get hit in net exports volumes like the UK.  Even so, U.S. business investment could be restrained by ongoing uncertainty from the T

BoE vs the (Weaker) Data

April 23, 2025 9:56 AM UTC

Amid what are now an ever broader array if indicators suggesting that the economy is stagnating, if not contracting the BoE has the opportunity to address this risks with three separate MPC speeches due later today.  Chief Economist Pill, Governor Bailey and Deputy Breeden can address the extent to

Safe Havens Other Than the USD

April 17, 2025 8:30 AM UTC

The USD and U.S. Treasuries are currently not acting like safe havens, as the crisis is U.S. centric with the tariff debacle. 10yr Treasuries can regain safe haven status if a U.S. recession occurs, but U.S. equities are still clearly overvalued versus equity and equity-bond metrics.  We prefer Ind

UK CPI Review: Inflation Respite Ahead of Likely Key April Surge?

April 16, 2025 6:28 AM UTC

Although relegated by current market ructions and tariff threats, the main near-term inflation story was (and remains) what happens in the April data when a series of energy, utility, post office and some other regulated and service price rises are due, albeit now possibly offset somewhat by a fall

UK Labor Market – A Tale of Two Labor Markets?

April 15, 2025 9:45 AM UTC

Policy-making is fraught with difficult decision making at the best of times.  But at present in the UK, such decisions are made all the more problematic given inconsistencies, if not conflicts, in the data backdrop, thereby making any reading of the economy all the more subjective.  Is employment

UK GDP Review (Apr 11): Marked Strength in Spite of Soft(er) Surveys

April 11, 2025 6:40 AM UTC

UK data can be erratic, but the hugely unexpected surge in February GDP numbers (Figure 1) looks hard to fathom.  A 0.5% m/m jump suggests the economy grew by an annualized 6%-plus in the month.  This is hard to square against the message from surveys and other data such as that for the labor mark

UK CPI Preview (Apr 16): Inflation to Slip Further Ahead of Likely Key April Surge?

April 8, 2025 2:03 PM UTC

Not surprisingly, February’s CPI data provided mixed signals, albeit reversing some of the upside surprises seen in January data.  The numbers may have undershot expectations, but actually tallied with our and BoE thinking, at least in terms of a 0.2 ppt drop for both the headline to 2.8% and for

UK GDP Preview (Apr 11): Resilience in Spite of Soft(er) Surveys

April 4, 2025 9:13 AM UTC

UK GDP Preview: Resilience in Spite of Soft(er) Surveys
Despite a fresh downside surprise for January numbers, the odds are increasing that current quarter GDP will be decidedly positive as opposed to the weak(ish) picture we perceive.  This is all the more likely given the 0.1% m/m ‘recovery’ w

Continuum Economics Calendar April 2025

March 28, 2025 11:41 AM UTC

Data and Events Calendar April 2025.