Bank of England
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October 28, 2024 9:35 AM UTC
The UK government is leaking parts of the October 30 budget to allow markets to adjust before the full announcement. While the new fiscal rule for debt/GDP could raise some modest concerns over increased supply for the gilt market initially, attention will quickly switch to the BOE November 7 and
October 21, 2024 11:30 AM UTC
With speculation that the Chancellor faces a £ 40 bln funding gap which will be addressed largely through tax rises, it seems as if the UK economy faces a larger fiscal tightening than was planned under the previous government. However, with promoting growth the policy priority, the Chancellor is
October 16, 2024 6:49 AM UTC
Helped by a fall in fuel prices and airfares, amplified by base effects, alongside some belated broader softening in services costs, UK inflation dropped to 1.7% in the September CPI (from 2.2%), thus falling below target for the first time since April 2021. This drop was greater than expected and
October 11, 2024 6:41 AM UTC
Much has been made of the UK’s economy’s apparent solidity, if not strength, so far this year given sizeable q/q gains in the first two quarters of the year of 0.7% and 0.5% respectively. But this may be something of a flash in the pan, not least as GDP growth has been positive in only two of
October 8, 2024 10:14 AM UTC
Helped by a fall in fuel prices, amplified by base effects, alongside some belated softening in services costs, UK inflation may drop to 1.9% in the September CPI (from 2.2%), thus falling below target since April 2021. Admittedly, the drop in services may be limited to a notch lower from Septembe
October 7, 2024 9:17 AM UTC
Much has been made of the UK’s economy’s apparent solidity, if not strength, so far this year given sizeable q/q gains in the first two quarters of the year of 0.7% and 0.5% respectively. But this may be something of a flash in the pan, not least as GDP growth has been positive in only one of
October 4, 2024 8:53 AM UTC
The contrast between BOE Bailey and Pill comments suggest a debate is occurring in the BOE over more easing than a simple quarterly pace of 25bps cuts. This is not just about data, but some members could be putting more weight on forward looking forecasts than current inflation trends. The Decem
September 26, 2024 10:45 AM UTC
· In the UK, while headline GDP numbers look firmer, the real economy backdrop and outlook remains no better than mixed. This should improve a disinflation process driven mainly by friendlier supply conditions. The BoE will likely ease in Q4 and continue doing so through 2025 (we look
September 24, 2024 9:00 AM UTC
• For U.S. Treasuries, we see 2yr yields coming down further on our baseline soft landing view, as the Fed moves consistently to a 3.00-3.25% Fed Funds rate. However, with considerable Fed easing already discounted, 2yr yield decline should be modest and 2yr yields should bottom mid-2025. 1
September 19, 2024 12:05 PM UTC
The expected unchanged MPC decision came with what some may regard was a lack of any major dissent beyond that from arch-dove, Swati Dhingra. But that 8:1 vote is very much a reaction to the closeness of the MPC vote last month to cut Bank Rate by 25 bp to 5.0%. It is also preference from the MP
September 18, 2024 6:31 AM UTC
The July CPI was notable for the clear and larger-than-expected fall in services inflation, one driven by a fall in restaurant/hotel inflation, this often seen as a bellwether indicator of price persistence. The August data showed mixed signs on such a basis. Indeed, services inflation rose back
September 13, 2024 8:30 AM UTC
UK wage inflation and CPI services will likely be less persistent than the BOE hawks worry about, which will likely see less resistance to UK rate cuts. This gives us confidence of quarterly rate cuts at the next five BOE monetary policy reports, plus one additional cut in December 2024 or March 2
September 11, 2024 8:57 AM UTC
Given weakness in private sector jobs data that undermines BoE GDP optimism, and given what we think could be a downside surprise to the BoE in CPI data due the day before the decision, we would not rule out a further BoE rate cut when the MPC gives it next verdict on Sep 19. More likely, given re
September 9, 2024 10:49 AM UTC
The July CPI was notable for the clear and larger-than-expected 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 pro
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
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
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
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
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
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
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
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
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
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
July 24, 2024 9:15 AM UTC
2yr Gilt yields will likely start declining further after the 1 BOE rate cut (we expect Aug 1), both as BOE communications guide to further cuts in the medium-term and as incoming wage and service inflation provides more comfort to reduce the scale of restrictive policy. We see 2yr Gilt yields at
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
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
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
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
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
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
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
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.
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
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
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
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
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
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
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
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
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
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
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
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
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