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.

March Outlook: Navigating the Turbulence

March 27, 2025 10:30 AM UTC

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

UK Spring Fiscal Statement – A Patch-up Not a Repair Job?

March 26, 2025 1:39 PM UTC

Chancellor Reeves never wanted a fiscal event at this juncture.  But market pressure and economic weakness have forced her into a series of government spending cuts designed to shore up her recently revised fiscal goals via this so-call spring statement.  The problem here is twofold. Firstly, the

Outlook Overview: Navigating the Turbulence

March 26, 2025 9:30 AM UTC

·       More tariffs will arrive from the U.S. from April with product (car, pharma, semiconductors and lumber) and reciprocal tariffs. President Trump has a 3-part approach to tariffs to raise (tax) revenue; bring production back to the U.S. and get fairer trade deals.  This means some of t

Equities Outlook: Turbulence Ahead

March 26, 2025 9:05 AM UTC

·       U.S. trade wars will likely hurt U.S. growth and raise inflation, with only small to modest Fed easing and a 10yr budget bill that will likely be neutral to negative for the economy.  With valuations still very high (Figure 1), we see scope for a correction to extend into mid-year th

UK CPI Review: Inflation Slips Even as Services Fail to Soften?

March 26, 2025 7:48 AM UTC

Not surprisingly, February’s CPI data provided mixed signals.  They 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 the core to 3.5%.  This came in spite of higher alcohol duties and no dro

Western Europe Outlook: Price Pressures - Puzzling or Possibly Persistent!

March 25, 2025 10:47 AM UTC

·       In the UK, we continue to retain our below-consensus GDP picture for this year, with growth actually downgraded and with downside risks that may actually be both increasing and materializing. The BoE will likely ease further through 2025 by at least 75 bp and maybe faster and into 202

DM Rates Outlook: Policy Divergence

March 25, 2025 9:30 AM UTC

 •    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. 10yr U.S. Treasury yields can be helped by this easing and see a move down through 2025.  However, the budget deficit will likely be 6.5-7.0%

DM FX Outlook: USD under pressure as Trump policies disappoint

March 25, 2025 8:51 AM UTC

·       Bottom Line: The market had expected the Trump presidency to see further fiscal expansion and consequent tight Fed policy and high US yields. But the combination of less tax cuts than previously expected and more aggressive tariff increases have led to reduced expectations for US grow

BoE Review: Being Careful Amid Data Conflicts

March 20, 2025 12:45 PM UTC

Even amid a BoE rate cut last month that was delivered with a clear(er) degree of action, all MPC members opting for easier policy.  Even so, it was clear there were still MPC divisions that probably reflected increased uncertainty enough for the BoE to have altered its rhetoric somewhat to stress

UK Labor Market – Private Payrolls Stay Soft Amid Cost Pressures?

March 20, 2025 7:57 AM UTC

To suggest that the UK labor market is merely getting less tight misses the point entirely even given more signs of higher participation.  Amid continued reservations about the accuracy of official labor market data produced by the ONS, alternative and very clearly more authoritative data on payrol

UK CPI Preview (Mar 26): Inflation Slips as Services Soften?

March 19, 2025 7:31 AM UTC

January’s CPI numbers showed a marked bounce back up, and with the 0.5 ppt rise taking it to a 10-month high of 3.0%, this being above consensus and BoE thinking.  Notably services jumped from 4.4% to 5.0%, actually below expectations, having been driven higher by a swing in airfares and the rise

Uncertainty Over Pace and Scale of Extra European Defense Spending

March 18, 2025 9:05 AM UTC

·       The crucial date for more clarity is the June 24-26 NATO summit.  Donald Trump might attend but will ask for more spending.  NATO head Rutte’s desire is for above 3% of GDP for NATO countries, but the politics and budget suggest that a 2.5% minimum may only be agreed with Germany

UK GDP Review: Previous Resilience Gives Way to Softer Surveys

March 14, 2025 7:39 AM UTC

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.  The upside surprises in December contrasts with a much softer impression from surveys (Figure 1), the latter now showi

BoE Preview (Mar 20): Being Careful the New Watchword

March 11, 2025 4:37 PM UTC

Having so far cut a modest 75 bp, the BoE rate cut last month was delivered with a clear(er) degree of action, by at least the MPC majority.  But those implied MPC divisions probably reflected increased uncertainty enough for the BoE to have altered its rhetoric somewhat to stress the need for poli

UK GDP Preview (Mar 14): Surprise Resilience Despite Surveys Suggesting the Opposite?

March 6, 2025 10:27 AM UTC

After upside surprises in December, the odds are increasing that current quarter GDP will be decidedly positive as opposed to the weak(ish) picture we perceive but which contrasts with a much softer impression from surveys (Figure 1), the latter now showing weakness spreading into hitherto strong co

Continuum Economics Calendar March 2025

February 27, 2025 9:52 AM UTC

Data and Events Calendar March 2025.

Equities: Growth, Rates and Tariffs

February 26, 2025 8:30 AM UTC

·        EZ equities still have further scope to outperform U.S. equities in the remainder of 2025 helped by further ECB easing/hopes of a Ukraine peace deal and U.S. equity market overvaluation restraining the U.S.  However, this can be volatile with uncertainty over the scale of U.S. tari

Ukraine Peace, U.S. Troop Withdrawals and Trump NATO Threats

February 24, 2025 8:27 AM UTC

·       Our baseline remains of a Russia-friendly peace deal in Ukraine, but this need not lead to a weaker European security situation.  This is our baseline (Figure 1), but does require Europe to make concessions to the Trump administration on defence spending increases and trade. However,

U.S. 25% Tariff for Cars, Pharma and Semiconductors?

February 19, 2025 1:40 PM UTC

·        Tariff reality in the spring and summer will likely be both tariff threats to negotiate trade deals and permanently higher tariffs in certain products and reciprocally to raise revenue for the U.S. government – along Peter Navarro guidance to Trump.  The macro effects of this cou

UK CPI Review: Inflation Jumps and Broadly So But Still Some Promising Wage Signs?

February 19, 2025 7:44 AM UTC

January’s CPI numbers showed a marked bounce back up, and with the 0.5 ppt rise taking it to a 10-month high of 3.0%, this being above consensus and BoE thinking.  Notably services jumped from 4.4% to 5.0%, actually below expectations, having been driven higher by a swing in airfares and the rise

U.S. Treasuries and the Trump Effect

February 18, 2025 1:20 PM UTC

If the Fed convince the market that it is leaving the door open to easing and sees Fed Funds reduction multi-year, then 2yr could hold onto a small discount in the next two quarters and then swing to a small premium of 2yr to Fed Funds (Figure 1).  10yr yields will likely maintain a small to modest

UK: Mixed Labor Market Signals – Yet Again

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

Reciprocal Tariffs and Reducing Bilateral Trade Imbalances

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.

Europe’s Ukraine Political Fallout and Market Hopes

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

UK GDP Review: Surprise Resilience

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

UK CPI Preview (Feb 19): Inflation Drop to Target Deferred

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

Trump’s Tariffs: Steel Then Reciprocal and Then Cars

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