UK Budget Outlook (Nov 26): The Fiscal Blame Game – Yet Again!

November 18, 2025 3:09 PM UTC

If not the most keenly awaited Budget for some years, Chancellor Reeve’s updates on Nov 26 is certainly the one that has attracted the most speculation and from all sides.  What is clear is that amid several factors, a marked fiscal tightening is in store.  This though now seems as if it will be

UK GDP Review: Underlying Economy Listless - At Best

November 13, 2025 8:10 AM UTC

As we have underlined, GDP has hardly moved since March and, again, the latest update undershot consensus thinking.  Indeed, GDP has fallen in two of the last three months (Figure 1), albeit where some recovery should be in store for the current quarter as these September numbers were hit (temporar

UK Gilts: Fiscal, Politics and BOE

November 12, 2025 9:55 AM UTC

·        2yr Gilt yields have scope to fall through 2026, as we see growth and inflation slowing more than the BOE and this will likely see the MPC changing view and cutting policy rates to 3.25% in H1 2026. Though a pause could then be seen, we see one final BOE cut then being delivered to

UK Labor Market: Continued Private Sector Job Losses Weighing Even More Clearly on Wages

November 11, 2025 8:01 AM UTC

Previous signs that the labor market is haemorrhaging jobs less clearly have evaporated, with fresh and deeper falls in the more authoritative payrolls.  Indeed, private sector payrolls are still falling, down almost a full ppt in y/y terms and more steeply so (Figure 1).  Regardless, the latest l

UK CPI Preview (Nov 19): Falling Back Broadly From Likely Peak?

November 10, 2025 10:49 AM UTC

After the upside (and broad) June CPI surprise, CPI inflation rose further, up another 0.2 ppt to 3.8% in July and stayed there for the two following months, with the September outcome having been lower-than-expected outcome in what we (and the BoE) think will be the inflation peak.  Indeed, we see

BoE Review: Fiscal Elephant in the Room Ignored – For Now!

November 6, 2025 1:47 PM UTC

A tight vote was always likely for the November MPC verdict, but the 5:4 split was closer than expected, but almost a repeat of the August decision when rates were cut to the current 4%.  What seems clear is that the effective swing voter was Governor Bailey but who coloured his decision with a cle

UK GDP Preview (Nov 13): Cyber Crime Shock but Underlying Economy Listless

November 3, 2025 4:01 PM UTC

Notably, the level of UK GDP has hardly moved since March but we think there will be distinct setback in the September numbers where the cyber-attack of JLR vehicle manufacturing may be sizeable – car reduction may have fallen some 25% m/m-plus in the month alone.  As a result, we see September G

BoE Preview (Nov 6): Easing Door Opening Afresh?

October 29, 2025 4:43 PM UTC

That the BoE kept Bank Rate at 4% after last month’s MPC meeting was all but certain, as was the two vote dissent in favor of further easing.  But of more note, and amid what have been recent hawkish hints from the MC majority, was that the MPC adhered to its (conventional) policy guidance, still

UK Food Inflation; Not Just a Domestic Issue, Despite Industry Claims

October 28, 2025 8:45 AM UTC

Food price inflation is becoming an increasing issue for both policy makers and households as well as companies that are generating and selling the produce. Particularly in the UK, rising food price inflation is helping shore up well-above target CPI inflation and thereby deterring the BoE from what

October 22, 2025 7:05 AM UTC

After the upside (and broad) June CPI surprise, CPI inflation rose further, up another 0.2 ppt to 3.8% in July, higher than the consensus but matching BoE thinking. Despite adverse rounding and fuel costs, the headline stayed there in the August figure, and did so again in September in what was a lo

UK GDP Review: Moving Sideways – At Best

October 16, 2025 6:39 AM UTC

Although the revisions up to July GDP data now confirm a small m/m fall for that month), this was unwound in the August numbers with a 0.1% rise (Figure 1). This put the less volatile three-month rate at 0.3% but we think this overstates what is very feeble momentum, which may actually be nearer zer

October 14, 2025 2:07 PM UTC

After the upside (and broad) June CPI surprise, CPI inflation rose further, up another 0.2 ppt to 3.8% in July, higher than the consensus but matching BoE thinking. Despite adverse rounding and fuel (and food) costs, the headline stayed there in the August figure, this foreshadowing a likely rise th

UK Labor Market: Continued Private Sector Job Losses Weighing More Clearly on Wages

October 14, 2025 9:22 AM UTC

There may be signs that the labor market is haemorrhaging jobs less clearly, if not actually indications that the more authoritative payrolls have stopped falling, albeit this largely due to increasing jobs within the health sector.  Indeed, private sector payrolls are still falling, down almost a

UK: BoE Financial Arm Warns of (Increasing) Risks But Ignores Tighter Financial Conditions

October 8, 2025 1:58 PM UTC

According to the BoE Financial Policy Committee (FPC) meeting this month, risks associated with geopolitical tensions, global fragmentation of trade and financial markets, and pressures on sovereign debt markets remain elevated.   In fact, the FPC was very clear of the increasing risk of a sharp ma

UK GDP Preview (Oct 16): Conflicting Signs To Veer Toward Weakness

October 7, 2025 1:37 PM UTC

Although we are pointed to a flat m/m GDP outcome for the July data, thereby matching the official outcome, the actual outcome was a small m/m fall (before rounding).  We see this being repeated in the August numbers with a 0.1% drop (Figure 1). This would leave the less volatile three-month rate a

UK: BoE Inflation Expectations Worries Overdone

October 3, 2025 10:22 AM UTC

UK monetary policy is relatively loose, according to BoE MPC member Mann.  But if the policy stance is so loose (something we refute), why is the real economy at best labouring, if not stalling.  In this regard, the BoE have had conflicting data in terms of whether the labor market is loosening wh

DM Central Banks: Wider-Ranging Conditions More Than Neutral Rates

October 2, 2025 6:55 AM UTC

·        Neutral policy rate estimates and forward guidance provide some help at the start of easing cycles, but less so at mid to mature stages.  For the Fed, ECB and BOE we look at a wider array of economic and financial conditions, alongside our own projections over the next 2 years to m

Western Europe Outlook: Policy Divergences

September 23, 2025 9:54 AM UTC

·       In the UK, we have upgraded 2025 growth by 0.2 ppt back to 1.0%, but pared back that for next year by a notch to a sub-par 0.8%. We think this will refresh somewhat stalled disinflation allowing the BoE to ease further into H1 by around 75 bp. 
·       Sweden has seen a clear e

DM Rates Outlook: Steepening Yield Curve The Old Normal?

September 23, 2025 7:53 AM UTC

•    We continue to forecast further yield curve steepening across the U.S./EZ and UK, driven by cumulative easing.  For the U.S. this can see a modest further decline in 2yr yields, but the prospect is for a move to a premium of 2yr to Fed Funds (unless a hard landing is seen).  10yr yields

BoE Review: Guillotine for Gilts?

September 18, 2025 11:53 AM UTC

That the BoE kept Bank Rate at 4% after this month’s MPC meeting was all but certain, as was the two vote dissent in favor of further easing.  But of more note, and amid what have been recent hawkish hints from the MPC majority, was that the MPC adhered to its (conventional) policy guidance, stil

September 17, 2025 6:29 AM UTC

After the upside (and broad) June CPI surprise, CPI inflation rose further, up another 0.2 ppt to 3.8% in July, higher than the consensus but matching BoE thinking. Despite adverse rounding and fuel (and food) costs, the headline stayed there in the August figure, this foreshadowing a likely rise th

UK GDP Review: Conflicting Signs

September 12, 2025 6:52 AM UTC

Although we are pointed to a flat m/m GDP outcome for the July data, thereby matching the official outcome, the actual outcome was a small m/m fall (before rounding).  The three-month rate slowed a notch to 0.2% but we think this overstates what is very feeble momentum, which may actually be nearer

UK CPI Preview (Sep 17): Goods Inflation the Recent Problem, Not Services?

September 10, 2025 9:05 AM UTC

After the upside (and broad) June CPI surprise, CPI inflation rose further, up another 0.2 ppt to 3.8% in July, higher than the consensus but matching BoE thinking. Partly due to rounding and fuel (and possibly food) costs, we see the headline rising a notch to 3.9% in the August figure, this foresh

BoE Preview (Sep 18): Guilty on Gilts?

September 9, 2025 3:54 PM UTC

That the BoE will keep Bank Rate at 4% after this month’s MPC meeting is all but certain.  Indeed, the MPC majority has hinted that the recent regular quarterly pace of easing seen so far in the cycle may be slowed or paused amid price persistence concerns.  This reflects the MPC majority’s co

UK CPI Review: Special Factors Pull Inflation Even Higher, but is that an Excuse?

August 20, 2025 6:47 AM UTC

After the upside (and broad) June CPI surprise, CPI inflation rose further, up another 0.2 ppt to 3.8% in July, higher than the consensus but matching BoE thinking. And still the highest since January last year.  The notable further 0.3 ppt rise in services inflation to 5.0% was also largely in lin

UK Labor Market: Is the BoE too Complacent?

August 19, 2025 10:10 AM UTC

Unlike the Fed, which has dual mandate of curbing inflation and promoting employment, the BoE remit is purely the former.  But it is clear that labour market considerations weigh heavily on the dovish contingent of the MPC and possibly increasingly so.  However, we feel that the BOE is not fully e

UK GDP Review: Fresh Upside Growth Surprise But Partly Inventory Driven?

August 14, 2025 7:02 AM UTC

To what extent better in June GDP, not least it having been the warmest even such month in England, lay behind the fresh upside surprise that saw the economy grow 0.4%, twice generally expected and with the falls of the two previous months pared back so that a clearer uptrend has emerged (Figure 1).

UK CPI Preview (Aug 20): Services Inflation Fall Afresh r as Headline Stabilises?

August 11, 2025 2:24 PM UTC

After the upside (and broad) June CPI surprise, we see CPI inflation steady at 3.6% in July, 0.2 ppt below BoE thinking.  Our relatively lower estimate factors in lower services inflation (Figure 1) and a fall back in that for food, the former allowing the core rate to unwind the increase to 3.7% s

BoE Review: The (Fiscal) Elephant in the Room as the BoE Splits

August 7, 2025 12:48 PM UTC

The widely expected 25 bp Bank Rate cut (to 4% and the fifth in the current cycle) duly arrived although the anticipated three-way split on the MPC was not quite as expected. It is puzzling how policy makers, faced obviously with both the same array of data and the same remit, can think so relativel

UK GDP Preview (Aug 14): Small GDP Rises Hardly Worth Shouting About?

August 6, 2025 2:48 PM UTC

There are some better signs as far as June GDP is concerned, not least it having been the warmest even such month in England.  But we see only a 0.1% m/m rise (Figure 1), even with slightly better property and retail signals for the month.  However, such an outcome, while a contrast to the two suc

BoE Preview (Aug 7): Labour Market Softness to Trigger Further Cut, But Fiscal Risks Loom

July 31, 2025 7:14 AM UTC

After what was widely considered to be a dovish hold at the last (June) MPC meeting (Bank Rate staying at 4.25%) which saw three dissents in favor of easing at that juncture, a 25 bp reduction is very much on the cards for the August decision.  Likely to discuss its two alternative scenarios still,

DM Household Sluggish Borrowing

July 30, 2025 10:45 AM UTC

·        Overall, restrained credit supply from banks; abundant employment/income or wealth for most households but restrained financial conditions for low income households could have restrained household lending growth to GDP.  However, the surge in government debt and ensuing fear of fut

UK Labor Market – No Lack of Slack

July 17, 2025 6:58 AM UTC

Even the BoE has acknowledged that the UK economy is developing slack in its labor market that we suggest is now not so much less tight but decidedly loose. Indeed, just days after BoE Governor Bailey suggested that signs of increasing labor market slack might prompt faster rate cuts, more such evid

UK CPI Review: Services Inflation Fails to Fall Further as Headline Surprises on Upside?

July 16, 2025 6:42 AM UTC

Calendar effects have been accentuating swings in UK CPI data of late and these may have reoccurred in the June numbers partly explaining June numbers which surprised on the upside. Indeed, June saw the headline and core rise a further 0.2 ppt – the former to an 18-mth high of 3.6%.  Moreover, se

UK BoE Hints of Faster Easing Backed up by Survey Data?

July 14, 2025 8:38 AM UTC

Somewhat ironically, just as BoE Governor Bailey suggested that signs of increasing labor market slack might prompt faster rate cuts, more such evidence accumulates.  In fact, as monthly survey compiled by Markit pointed to not only weaker pay pressures, falling job rolls (Figure 1) and a steep ris

UK GDP Review: Another Downside Surprise

July 11, 2025 6:28 AM UTC

After two successive upside surprises, a correction back in monthly GDP was not entirely a wholesale surprise for April GDP.  But that 0.3% m/m drop was almost repeated in the May numbers (Figure 1), where a further albeit smaller (ie 0.1%) fall occurred, but very much below consensus.  Admittedly

UK CPI Preview (Jul 16): Services Inflation to Fall Further?

July 9, 2025 2:05 PM UTC

Calendar effects have been accentuating swings in UK CPI data of late. Indeed, the timing of Easter may have been a partial factor in the May CPI, where a distinct drop back in services and core rates failed to make the headline drop, which instead stayed at 3.4% in line with BoE thinking due to hig

UK: Risk Picture Rising and Broadening

July 9, 2025 12:35 PM UTC

The BoE’s latest message from its Financial Policy Committee notes that UK household and corporate borrowers remain resilient in aggregate while the UK banking system remains in a strong position even if economic, financial and business conditions became substantially worse than expected.  But th

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