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,

UK CPI Preview (Jan 15): More Mixed Inflation Signals

January 10, 2025 11:55 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.  Admittedly, markets are looking for the headline rate to nudge up a notch, although we look for a st

U.S. Treasuries versus Bunds and Gilts

January 10, 2025 8:10 AM UTC

·        UK Gilts have been dragged higher by rising Treasuries and market concerns that BOE rate cuts will be limited (here), while 10yr Bund yields have also been dragged higher by Treasuries concerns on Fed rate cuts/budget deficit and tariffs.  Multi quarter we see this as overdone. We

Gilt Yields Rise on U.S. and Fiscal Slippage Concerns

January 9, 2025 9:40 AM UTC

·       10yr Gilts yields are rising on concerns of UK fiscal slippage, but also higher U.S. yields and funding pressures as GBP100bln of BOE QT adds to the budget deficit targeted at 4.5% of GDP in 2024/25.  Chancellor Reeves will likely recommit to the fiscal rules (ie further small correc

Western Europe Outlook: Divergent Policy Thinking

December 19, 2024 2:12 PM UTC

·       In the UK, perhaps the main story in our outlook is that we retain our below-consensus GDP picture for next year, with growth of 1.0% and with downside risks. The BoE will likely ease further through 2025 by at least 100 bp and maybe faster and beyond. 
·       As for Sweden, d

BoE Review: A Dovish Hold?

December 19, 2024 12:54 PM UTC

An expected unchanged decision left Bank Rate at 4.75% but what was not foreseen was three dissents in favor of a cut with a further member advocating a more activist strategy (presumably ahead).  Overall, the BoE adhered to a gradual approach to removing monetary policy restraint remains appropria

DM Rates Outlook: Policy and Spread Divergence

December 19, 2024 12:07 PM UTC

•    2yr U.S. Treasury yields can decline initially as the Fed finishes easing (Figure 1), but as the sense grows that the rate cut cycle is stopping, we see the 2yr swinging to a small premium versus the Fed Funds rate – as the market debates the risks of a future tightening cycle.  For 10y

UK CPI Review (Dec 18-19): Still Mixed Inflation Signals

December 18, 2024 7:51 AM UTC

While exceeding both our and BoE thinking, November CPI inflation jumped 0.3 ppt to 2.6%, actually an eight month high.  Services inflation remain ned at 5.0% while the core rose 0.2 ppt to 3.5%, also exceeding Bank projections (Figure 1).  The data comes after more cost pressure worries were fann

UK GDP Review: Friday the 13th Weakness Confirmed?

December 13, 2024 7:41 AM UTC

The latest 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, this

UK CPI & BoE Preview (Dec 18-19): Benign Inflation Signals But BoE Still Cautious

December 11, 2024 12:27 PM UTC

While they may not affect the overall BoE verdict on Dec 19, which looks very likely to be a pause after last month’s 25 bp cut (to 4.75%), forthcoming data may very well influence the MPC vote and the message in the updated Monetary Policy Summary.  In particular, CPI data (Dec 18) may have some

UK GDP Preview (Dec 13): Friday the 13th Weakness?

December 4, 2024 11:09 AM UTC

There are increasing 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.  However, GDP growth has been positive in only two of the last six months of data and worth a cumulative

BoE: Implementing Bernanke Report Already Underway But Still a Long Way to Go

November 25, 2024 12:05 PM UTC

Without much detail, Deputy Governor for Monetary Policy Lombardelli set out the Bank's plan to implement the Bernanke Review.  The details were few and far between, save to say that scenario analysis will be more important and has already been addressed somewhat, with the aim was to help think abo

UK CPI Review: Inflation Back Above Target & Core Pressures Higher

November 20, 2024 7:42 AM UTC

Coming in higher than expected and a notch above BoE thinking, CPI inflation jumped to 2.3% in October. Helped by a fall in fuel prices and airfares, amplified by base effects, alongside some belated broader softening in services costs, UK inflation had dropped to 1.7% in the September CPI (from 2.2

UK: Weak Growth – Don’t Blame It All on the Budget!

November 18, 2024 12:40 PM UTC

To suggest that the disappointing Q3 GDP data is largely down to apprehension about the Budget presented at the end of October is incomplete at best and misplaced at worst.  After all, monthly GDP data suggest that the economy has not grown since May and by only 0.2% since March.  These numbers ar

UK GDP Review: Momentum Dissipated?

November 15, 2024 7:58 AM UTC

The latest data, including that for the Q3, very much questions the UK’s economy’s apparent solidity, if not strength, as apparently seen in sizeable q/q gains in the first two quarters of the year of 0.7% and 0.5% respectively.  Indeed, GDP growth has been positive in only two of the last six

UK CPI Preview (Nov 20): Inflation Back Above Target But Core Pressures Lower

November 13, 2024 11:51 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

UK Labor Market – Private Payrolls Contract Amid Cost Pressures?

November 12, 2024 12:27 PM UTC

To suggest that the UK labor market is merely getting less tight misses the point entirely.  Amid continued reservations about the accuracy of official labor market data produced by the ONS, alternative and very clearly more authoritative data on payrolls suggest that employment is continuing to co

UK GDP Preview (Nov 15): Momentum Slowing?

November 8, 2024 8:02 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 have been something of a flash in the pan, not least as GDP growth has been positive in only

BoE Review: Gradualism Still the Order of the Day

November 7, 2024 1:43 PM UTC

In what was something of a more hawkish assessment and outlook, the BoE nevertheless delivered the expected further 25 bp Bank Rate cut to 4.75% with only one (expected dissent against.  But after what had been hints of a possibly more policy activism from Governor Bailey last month, the MPC instea

BoE Preview (Nov 7): Activism vs Gradualism Debate Ferments MPC Divisions?

November 4, 2024 12:07 PM UTC

As with several recent BoE verdicts, the Nov 7 policy decision will be more important for what is said, than done, especially as it seems that even a further projected undershoot of the inflation target may not placate the MPC hawks!  A 25 bp cut to 4,7% seems highly likely but the question is whet

UK Budget Review: Higher Taxes But Still a Marked Fiscal Boost

October 30, 2024 3:24 PM UTC

Despite a focus on hefty tax rises of some 1% of GDP, the Budget also sees borrowing rise by a similar amount so that a sizeable surge in government spending mean this is one of the largest fiscal loosenings in recent decades.  But the boost to GDP growth is temporary and modest and where any impro

UK Budget and Gilts

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

UK Budget Preview (Oct 30): More Tax and More Spend

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

UK CPI Review: Inflation Below Target – BoE Hawks Placated?

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

UK GDP Review: Momentum Moderating?

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

UK CPI Preview (Oct 16): Inflation Below Target – BoE Splits Widen?

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

UK GDP Preview (Oct 11): Moderating Momentum?

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

BOE: Gradual to Activist?

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

Western Europe Outlook: Gradualism vs Reality

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

DM Rates Outlook: Rate Cuts Arrive Except Japan

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

BoE Review: Explicit Gradualism

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

UK CPI Review: Inflation Stable and Services Resilience Still Evident?

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

BOE Rate Cuts to 3.50% Then Stop?

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

BoE Preview (Sep 19): A Dovish Hold?

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

UK GDP Review: More Mixed Messages Give BoE Food for Thought

September 11, 2024 6:34 AM UTC

Surprising to the downside, the economy failed to show more positive signs with the July GDP data.  Indeed, GDP was flat in m/m terms for the second successive month, compared to a 0.2% m/m rise widely envisaged.  Thus the data still show showing volatility, as GDP growth has been positive in only

UK August CPI Preview (Sep 18): Inflation Slips Back and Services Resilience Diminishes Further?

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

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

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