UK GDP Preview (Sep 11): More Mixed Messages Ahead as Fiscal Updates Looms

September 3, 2024 9:23 AM UTC

It does seem as if the economy is going to show more positive signs with the July GDP data.  Indeed, we see a 0.2% m/m rise, albeit with the data still showing volatility.  Indeed, GDP growth has been positive in only one of the three months of the last quarter, having been flat in June.  Regardl

Fed Faster Than ECB and BOE?

August 29, 2024 2:05 PM UTC

The Fed will likely ease by more than the ECB and BOE by June 2025, both given pro-activeness from the Fed and also the big gap between the current policy rate and Fed’s assessment of neutral rates.  We see a cumulative 175bps of cuts by end June 2025.  ECB hawks however are unlikely to stop a c

Continuum Economics Calendar September 2024

August 27, 2024 1:02 PM UTC

Data and Events Calendar September 2024.

UK GDP Review: Mixed Messages with Little to Sway the BoE

August 15, 2024 7:00 AM UTC

After the mild recession in H2 last year, the ‘recovery’ now evident is much clearer than any expected with GDP growth notably positive but in only one of the three months of the last quarter.  Indeed, amid weaker retail sales, property transactions and car production data, GDP failed to grow i

UK CPI Review: Inflation Up on Energy But Services Resilience Diminishes

August 14, 2024 6:47 AM UTC

The July CPI is notable for a clear fall in services inflation, one driven by a fall in restaurant/hotel inflation, this often seen as a bellwether indicator of price persistence.  Indeed, services inflation fell 0.5 ppt to 5.2%, a two-year low and well below the BoE projection.  Even so, due to e

UK Jobs Data: A Tale of Two Markets

August 13, 2024 2:14 PM UTC

Amid distortions in much of the labor market data, the BoE is focusing on private sector numbers, especially given the added distortion of recent and looming high public sector ay awards.  In that regard it will get some solace from today’s average earnings data which show private regular pay at

UK GDP Preview (Aug 15): Small Correction After Run of Upside Surprises

August 7, 2024 10:28 AM UTC

After the mild recession in H2 last year, the ‘recovery’ now evident is much clearer than any expected with GDP growth notably positive in all but one of the five months to May.  But amid weaker retail sales, property transactions and car production data, we see a 0.1% m/m correction in June GD

UK CPI Preview (Aug 14): Inflation to Rise on Energy But Services Less Resilient?

August 6, 2024 12:31 PM UTC

CPI inflation’s flirt with the 2% target is likely to be short-lived.  We see the rate rising back up to 2.3% in July from 2.0%, this projection being a notch below BoE thinking, but with the core edging down to 3.4% (Figure 1).  The rise is solely due to energy base effects related to the Ofgem

BoE Review: Getting Less Restrictive

August 1, 2024 12:44 PM UTC

Despite market thinking being split on the matter, but as we flagged, the BoE cut Bank Rate by 25 bp to 5.0% this month taking the rate from a 16-year high and ending an above-average policy pause of 11 months. We are a little surprised that the vote (5:4) was so close as the dissent of Chief Econom

UK Fiscal Update: Bring Out Your Debt

July 29, 2024 3:27 PM UTC

Having stressed that an (urgent) assessment of the fiscal backdrop will be presented to parliament before the summer recess, Chancellor Reeves made her statement today.  In line with much-flagged media reports, she said there is a circa- £22bn ‘black’ hole in the fiscal arithmetic.  Without b

BoE Preview (Aug 1): Time to Get Less Restrictive

July 25, 2024 3:20 PM UTC

We still think that the BoE will cut Bank Rate by 25 bp at the Aug 1 MPC verdict and that that two further such cuts may arrive by end-year.  We accept that stubborn services inflation may harden the hawks, despite softer wage pressures.  But while the recent Bernanke Report recommended phasing ou

Continuum Economics Calendar August 2024

July 24, 2024 9:15 AM UTC

Data and Events Calendar August 2024.

UK Household Wealth and the Pension Predicament

July 22, 2024 12:44 PM UTC

Unlike some other parts of the DM world, UK households have seen a serious dent put into their stock of wealth in the last two years.  Indeed, household net worth fell in both 2022 and 2023, both in absolute terms and also as a % GDP (Figure 1).  The 2022 drop was very much a slump in pension fund

UK Labor Market: Far Less Resilient Wage Pressures As Labor Market Loosens Further

July 18, 2024 7:15 AM UTC

As we have underscored repeatedly, the BoE has come to regard the official ONS average earnings data with some suspicion given response rates to the surveys that have fallen towards just 10%.   But the BoE will not be able to dismiss the latest earnings data given that alternative (and more author

UK CPI Review: Inflation Stays at Target and Services Stay Resilient?

July 17, 2024 6:35 AM UTC

As has been made clear by policy-makers, labor market and particularly CPI data are crucial to BoE thinking about the timing and even the existence of any start to an easing cycle.  In this regard the fact that headline CPI inflation dropped back to the 2% target in May is important but far from de

UK Productivity: Starting to Recover - Maybe?

July 15, 2024 2:12 PM UTC

Amid the new government’s economic priority to boost the trend or potential growth rate, any hint that this could be occurring would be welcome and important.  With this in mind, it is notable that after the mild recession in H2 last year, the ‘recovery’ through this year is much clearer than

EZ and UK Government Bonds: Decoupling From the U.S.?

July 12, 2024 9:37 AM UTC

Different economic and inflation dynamics, plus no constraint from trade weighted exchange rates, means that the ECB and BOE can cut irrespective of the Fed in the coming quarters.  This can see 2yr yields decline, though less so in Germany where a 2.5% ECB depo rate is already discounted.  10yr y

UK GDP Review: More Upside Surprises

July 11, 2024 7:02 AM UTC

After the mild recession in H2 last year, the ‘recovery’ now evident is much clearer than any expected with GDP growth notably positive, and with less apparent volatility.  Indeed, coming in more than expected, GDP rose by 0.4% m/m in May accentuating the bounce in the two months prior to the f

UK CPI Preview (Jul 17): Inflation To Stay at Target – An Update on the Policy Outlook?

July 10, 2024 1:51 PM UTC

As has been made clear by policy-makers, labor market and particularly CPI data are crucial to BoE thinking about the timing and even the existence of any start to an easing cycle.  In this regard the fact that headline CPI inflation dropped back to the 2% target in May is important but far from de

UK Election Aftermath: Labour’s Solid Victory

July 5, 2024 5:24 AM UTC

Labour have won a large seat majority, though with a modest vote share.  This should provide political stability in the UK for the next 5 years.  The key question for market remains how the fiscal rule will be meet and how slowly or quickly Labour will take actions to boost long-term growth. 

UK GDP Preview (Jul 11): Questions Continue Regarding How Resilient is the Economy?

July 3, 2024 4:26 PM UTC

The economy may have been in only mild recession in H2 last year, but the ‘recovery’ now evident is seemingly much clearer than any expected with GDP growth notably positive, albeit with some continued volatility.  Indeed, coming in more than expected, and despite industrial action, GDP rose by

Webinar Recording June Outlook: Cyclical and Structural Forces

July 2, 2024 7:30 AM UTC

UK Markets After The Election: Will Labour Push for Growth Slowly or Quickly?

June 28, 2024 7:14 AM UTC

It is uncertain whether an incoming Labour government in the UK would slowly or quickly take action to boost trend growth and this is the most important question for post-election sentiment towards UK assets.  For the Gilt market, the key is that the BOE actually starts cutting rates and that the 1

Continuum Economics Calendar July 2024

June 26, 2024 10:52 AM UTC

Data and Events Calendar July 2024.

Outlook Overview: Cyclical and Structural Forces

June 25, 2024 10:15 AM UTC

•    The global economy is showing signs of healing, as inflation comes back towards targets and growth recovers momentum in some economies. Nevertheless, the cyclical headwind of lagged monetary tightening remains in DM countries, and will likely be one of the forces slowing the U.S. economy

DM Rates Outlook: Rate Cuts Arrive Except Japan

June 24, 2024 8:45 AM UTC

•    For U.S. Treasuries we see a steady easing process from the Fed from September, which can allow 2yr yields to fall consistently.  However, the decline in H2 2024 will be slower at the long-end from traditional yield curve steepening pressures and then we see fiscal stress in H1 2025 unde

DM FX Outlook: Politics rears its head

June 24, 2024 7:42 AM UTC

·       Bottom Line: The USD strength in Q2 on the back of a less dovish view of the Fed is unlikely to extend over the rest of the year. The JPY remains exceptionally cheap and has potential to recover sharply if risk appetite weakens. A slower JPY recovery is likely if lower inflation leads

BoE Review: MPC Splits Enlarge to Suggest Cut Soon

June 20, 2024 11:48 AM UTC

As widely Bank Rate was kept at 5.25% for the seventh successive MPC meeting this month, with its rhetoric largely unchanged.  But while there were still only two formal dissents, the minutes clearly suggested that for some of the remaining seven members the policy decision at this meeting was fine

UK CPI Inflation Review: Inflation Back at Target

June 19, 2024 6:39 AM UTC

As labor market and particularly CPI data are crucial to BoE thinking about the timing and even the existence of any start to an easing cycle, this further drop in inflation is important but uncertain.  Indeed, largely meeting expectations, CPI headline inflation fell from 2.3% to 2.0% (actually ju

France Debt: Dependent on Non-Residents

June 18, 2024 9:20 AM UTC

Any further major fiscal slippage under a new government could prompt more of a reduction in French government bond exposure, which would likely mean a multi month/quarter risk premia for France and cause spillover difficulties for Italy. It is worth remembering that France is dependent on non-resid

BoE Preview (Jun 20): Data Dependent Easing Bias Makes BoE Decision Unclear

June 12, 2024 10:42 AM UTC

After Bank Rate was kept at 5.25% for the sixth successive MPC meeting last month, Governor Bailey remarked that then market rate pricing may be too cautious.  He also accepted that a rate cut at the next MPC verdict on June 20 was a distinct possibility, but underscored the importance of the data

UK CPI Inflation Preview (Jun 19): Inflation Falls To Target?

June 11, 2024 9:57 AM UTC

It is very clear that labor market and CPI data are crucial to BoE thinking about the timing and even the existence of any start to an easing cycle.  But perhaps the CPI data is the most crucial especially with April’s signs of resilient services (and particularly in regard to eating out) very mu

France Downgrade: Warning for the U.S./UK?

June 5, 2024 9:30 AM UTC

 French politics makes it difficult for President Macron to improve the underlying budget deficit and government debt after the S&P downgrade to AA-.  The National Rally could also do well in this week’s European parliamentary elections and put further pressure on Macron.  Meanwhile, though rat

UK GDP Preview (Jun 12): Fresh Correction on the Cards?

June 3, 2024 1:52 PM UTC

The economy may have been in only mild recession in H2 last year, but the ‘recovery’ now evident is much clearer than any expected with GDP growth notably positive.  Indeed, coming in more than expected, and despite industrial action, GDP rose by 0.4% m/m in March accentuating the upgraded boun

Continuum Economics Calendar June 2024

May 28, 2024 11:13 AM UTC

Data and Events Calendar June 2024.

UK Sales Weakness Curbing Pricing Power?

May 24, 2024 7:05 AM UTC

Ending an interesting week of UK data, retail sales slumped in April, partly due to what was a wet month.  Notably, sales volumes fell by 2.3% m/m following a broadly flat February and March 2024 and were down by 2.7% y/y and 3.8% below their pre-pandemic level.  This weaker-than-expected outcome

UK: July Election Called

May 22, 2024 4:27 PM UTC

In a somewhat surprise announcement, PM Sunak has called a general election for July 4, somewhat earlier than the autumn timetable that had been previously hinted at.  He is doing so with his Conservative Party lagging severely in the polls.  However, especially after recent local election results

BOE: August Expected But Could be June and Not Enough Discounted

May 21, 2024 11:11 AM UTC

The market is not discounting enough BOE easing in the next 6-18 months during which we see a cumulative 175-200bps of cuts.  The BOE is swinging from a reactive to proactive policy stance and will take account of the prospects of further wage and service inflation slowing.  UK fiscal tightening w

UK Labor Market: Further Signs of Resilient Wage Pressure But Soggier Activity More Notable

May 14, 2024 8:40 AM UTC

As we have underscored repeatedly, the BoE has come to regard the official ONS average earnings data with some suspicion given response rates to the surveys that have fallen towards just 10%.   But the BoE will not be able to dismiss the latest earnings data given that alternative (and more author

UK CPI Inflation Preview (May 22): Inflation to Fall Further and More Broadly

May 13, 2024 12:10 PM UTC

It is very clear that labor market and CPI data are crucial to BoE thinking about the timing and even existence if any start to an easing cycle.  But perhaps the CPI data is the most crucial making the looming April data all the more important for markets as they weigh the chances of an initial rat

Asset Allocation 2024: Tricky Seven Months Remaining

May 10, 2024 1:06 PM UTC

Fed easing expectations for 2025 and 2026 can shift from a terminal 4% Fed Funds rate towards 3%, as the U.S. economy slows due to lagged tightening effects.  Combined with Fed easing starting in September this should mean a consistent decline in 2yr yields.  However, 10yr U.S. Treasury yields wil

BoE Review: Data Dependent Easing Bias Clearer?

May 9, 2024 12:52 PM UTC

There was little surprise that Bank Rate was kept at 5.25% for the sixth successive MPC meeting, nor that the dissent in favor of an immediate rate cut doubled to two as a result of Dep Gov Ramsden confirming more dovish leanings.  The updated projections at least validated the rate path discounted