UK GDP Preview (Jul 11): Another Large Downside Surprise?

July 3, 2025 9:12 AM UTC

After two successive upside surprises, a correction back in monthly GDP was not entirely a wholesale surprise for April GDP.  But we see that 0.3% m/m drop being repeated in the looming May numbers (Figure 1), thereby adding to a gloomier economic backdrop most recently highlighted by growing signs

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

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

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

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

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 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

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

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

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

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)

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

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

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

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

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%

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

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

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

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

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

BoE Review: Uncertain MPC Signals It Needs to be Careful

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

UK GDP Preview (Feb 13): Weakness Continues, if not Deepens?

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

BoE Preview (Feb 6): Clearer Dovish Message to Markets?

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

BOE QT: A Heavier Burden than Fed/ECB QT

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

UK GDP Review: Continued Weakness Evident – BoE Voicing Concern?

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

UK CPI Review: Clearly More Reassuring Inflation Signals

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

UK GDP Preview (Jan 16): Continued Weakness?

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,