UK: Tax Rises Looming?

July 2, 2025 8:34 AM UTC

The politically damaging climb-down on welfare spending yesterday also saw the government face an additional fiscal hole after the fiscal watchdog (the Office for Budget Responsibility, OBR) hinted it has been repeatedly overestimating growth.  Indeed, in its annual Forecast Evaluation Report, it s

DM Central Banks: Overlooking Lagged 2021-23 Tightening and QT?

July 2, 2025 8:30 AM UTC

We are concerned that DM central banks are underestimating the lagged impact of 2021-23 tightening and ongoing QT, which impacts the transmission mechanism of monetary policy.  Central banks need to consider cyclical and structural issues, but also need a more rounded view of the stance and implica

Trump Tariffs: Poker Face?

July 1, 2025 12:55 PM UTC

Our central scenario (but less than 50%) is towards a scenario of compromise, with some agreements in principle or trade framework deals, delays for most other negotiating in good faith but with one or two countries seeing a reciprocal tariff rise e.g. Spain and/or Vietnam.  This could still be fol

EZ HICP and ECB Strategy Review: Headline Up to Target as Services Inflation Rises Back?

July 1, 2025 9:32 AM UTC

Despite its updated its monetary policy strategy detailed yesterday, inflation – now at target – is very much a side issue for the ECB at present, albeit with oil prices possibly accentuating Council divides.  Admittedly, the flash June HICP rose a notch to 2.0% matching the -consensus, but up

German Data Review: Services Dip Further Despite Calendar Effects?

June 30, 2025 12:30 PM UTC

Germany’s disinflation process continues, with the lower-than-expected June preliminary numbers refreshing and reinforcing this pattern, with a 0. Ppt drop to 2.0%, a 10-mth low (Figure 1)!  Previously but there have been signs that the downtrend was flattening out and this impression may have be

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

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 Forecasts to download in Excel

June 25, 2025 9:30 AM UTC

Below is an Excel file that contains our headline forecasts for GDP, Inflation, Monetary Policy, and Exchange Rates.

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

EZ HICP Preview (Jul 1): Headline Stays Below Target as Services Inflation Rises Back?

June 24, 2025 8:57 AM UTC

Inflation – now below target – is very much a side issue for the ECB at present, albeit with oil prices possibly accentuating Council divides.  Indeed, we see the flash June HICP staying at May’s below-consensus, eight-month low and below-target 1.9% (Figure 1).  More notably, having jumped

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

German Data Preview (Jun 30): Calm Before the Storm?

June 23, 2025 10:29 AM UTC

Germany’s disinflation process continues, but there have been signs that the downtrend was flattening out and this impression may have been accentuated by the small and lower than expected (ie 0.1 ppt) drop in the headline in May to 2.1%, still an eight-month low (Figure 1).  Adjusted data also s

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

Japan Outlook: Hot Inflation Partially Transitory

June 23, 2025 3:00 AM UTC

·         Growth in private consumption remains sluggish in Q1 2025 on negative real wages. Wage hike in 2025 so far looks little affected by U.S. tariffs and should remain above 2% for the rest of 2025. The subtle change in business price/wage setting behavior will be supportive for consum

U.S. Outlook: Slowdown but not Recession, Cautious Fed Easing

June 20, 2025 2:14 PM UTC

•    Policy uncertainty remains high and final details of the tariffs will depend on the decisions of the courts as well as those of President Trump. However the magnitude of the tariffs is becoming easier to predict than the detail. Trump looks set to insist on a minimum average tariff of at

Commodities Outlook: Policy Realignment

June 20, 2025 9:30 AM UTC

In Q2 2025, eight OPEC+ countries pledged a faster oil supply hike, motivated by market share losses, internal frictions, and geopolitical shifts. However, actual output has fallen short due to overproduction offsets, domestic consumption, and capacity limits. Further gradual increases are expected,

Eurozone Outlook: In Tariff Limbo Land?

June 20, 2025 9:24 AM UTC

·       Amid what may still be tightening financial conditions and likely protracted trade uncertainty, we have pared back the EZ activity forecast for 2026. However, the picture this year appears to be slightly better but this is largely a distortion and we think that the economy has instead

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

Norges Bank Review: Coming (Very) Late to the Party

June 19, 2025 8:57 AM UTC

Although we thought the Norges Bank would not start to ease until its next (Aug) meeting, we think the surprise 25 bp policy rate cut (to 4.25%) announced today is very much warranted, as are the further cuts (Figure 1) being flagged in the updated Monetary Policy Report (MPR) – ie two more such m

SNB: Cut to Zero, But Negative Rates an Option

June 19, 2025 8:00 AM UTC

 The SNB would probably prefer to consolidate the effects of previous rate cuts, but the low inflation forecast and downside risk to inflation means that a cut to -0.25% is feasible at the September or December meetings.  The SNB will also hope that the threat of negative rates restrains the CHF s

Sweden: Riksbank Cuts and Flags Possible Further Move?

June 18, 2025 8:26 AM UTC

As widely expected, the Riksbank cut its policy rate by a further 25 bp to a new cycle low of 2.0%.  Moreover, as we hinted at, the Board even then suggest that a further move is possible (Figure 1).  Given that even with substantial paring back of its growth forecast in its updated Monetary Polic

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

BOJ QT And Steeper Yield Curve

June 17, 2025 8:41 AM UTC

Despite the slowdown in the pick-up in BOJ QT, monthly bond purchases are set to slow from Yen4.1trn pm to Yen2.1trn pm by Q1 2027.  With bond maturities BOJ QT is getting bigger and will mean that supply pressures continue to drive yield curve steepening.  We see 1.85% 10yr JGB yields by end 2025

BoJ Review: As Expected

June 17, 2025 5:11 AM UTC

The BoJ has kept rates unchanged at 0.5% in the June 17th meeting 
Bond purchase tapering at 200 billion JPY after Q2 2026

BoJ Preview: Little Cues Expected

June 17, 2025 12:19 AM UTC

The BoJ will keep rates unchanged at 0.5% in the June 17th meeting with anticipation for another two year plan on bond purchase tapering 

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

SNB Preview (Jun 19): Toying With Being Negative?

June 11, 2025 9:23 AM UTC

A further 25 bp cut (to zero) in the SNB policy rate on Jun 19 now looks almost certain.  Weak(er) business surveys suggest that the tariff threat is both tangible and growing and this is before key Swiss pharmaceutical exports come under fire.  Meanwhile, there is the strong currency where FX int

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

ECB: Time to Reassess and Slow QT?

June 10, 2025 2:25 PM UTC

Further ECB easing is on the cards, the question being whether this should start to encompass toning down quantitative tightening (QT) plans too! Notably, the two ppt fall in the discount rate cuts has come against a backdrop where the ECB has continued unconventional tightening by scaling back its

Norges Bank Preview (Jun 19): Policy Easing Schedule Clearer?

June 10, 2025 1:49 PM UTC

It is very unlikely that the Norges Bank will do anything at this month’s Board meeting other than to suggest the easing cycle will start later in the year and that the policy rate will thus remain at 4.5% - for the time being.  In fact, it will have to be more explicit about any such a timetable

Sweden Preview (Jun 18): Riksbank to Cut and Reassess Policy Outlook?

June 10, 2025 10:05 AM UTC

We are even more convinced that the Riksbank will cut further and as soon as the next Board verdict on Jun 18.  Moreover, the Board may even then suggest that further moves are possible.  This may seem stretched given that the Riksbank has virtually called a halt to the easing cycle, albeit most r

U.S. Deficit and Government Debt Concerns

June 10, 2025 9:00 AM UTC

 The large U.S. budget deficit has helped push up 10yr real yields to 2% in 2024/2025, but both the budget deficit (heavy issuance) and government debt trajectories (sustainability and rating concerns) are key going forward if the 10yr budget bill passed is similar to the House Bill.  Foreign acco

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

Eurozone: The Tail Wagging the Dog?

June 6, 2025 10:26 AM UTC

Given what now looks to have been an outstanding first quarter, the ECB’s assertion at this month’s Council press conference that it is a good position to navigate the uncertain conditions looks more tenable.  After all, GDP jumped 0.6%, twice the previous estimate.  But this is no indicator o

ECB Council Meeting Review: Easing Window Stays Open

June 5, 2025 1:58 PM UTC

This widely seen 25 bp deposit rate cut (to 2.0%) now means the previous degree of tightening has been effectively halved.  Notably, it comes alongside an ECB policy and economic outlook/bias little changed from that of recent months.  The door is thus left open for a move at the July 24 policy ve

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

EZ HICP and Labor Market Review: Headline Back Below Target as Services Inflation Reverses Easter Effect

June 3, 2025 9:42 AM UTC

EZ HICP inflation met our below-consensus expectation in dropping to an eight-month low and below-target 1.9% (Figure 1) helped by rounding and a further m/m fall in fuel prices.  More notably, having jumped 0.5 ppt to 4.0% in April, very probably due to the impact of the timing of Easter affecting

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

German Data Review: Lower Headline Services Surge Reverses

May 30, 2025 12:47 PM UTC

Germany’s disinflation process continues, but there have been signs that the downtrend was flattening out and this impression may have been accentuated by the small and lower than expected (ie 0.1 ppt) drop in the headline in May to 2.1%, still an eight-month low.  Most notable amid a drop caused

Sweden: Riksbank Needs to Revise Output Gap Estimate and Reassess Policy Outlook?

May 30, 2025 11:49 AM UTC

We are even more convinced that the Riksbank will cut further and as soon as the next Board verdict on Jun 18.  Moreover, the Board may even then suggest that further moves are possible.  This may seem stretched given that the Riksbank has virtually called a halt to the easing cycle, albeit most r

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

ECB Council Meeting Preview (Jun 5): Much Earlier Sub-Target Inflation Outlook?

May 28, 2025 2:30 PM UTC

What is widely seen as an eighth 25 bp deposit rate cut in the current cycle on June 5 may be overshadowed by the ECB’s implicit if not explicit shift about the outlook thereafter.  The door will be left open for a move at the July 24 policy verdict given the array of news (probably negative part