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Philip Rush
- Philip Rush
Riksbank: hopeful for vaccine dividend
- The Riksbank has announced no monetary policy changes, as expected. However, a relatively hawkish tone is created by GDP growth upgrades. We see downside risk to the more resilient global picture, which relies on a vaccination dividend. - Any sense that the vaccination rollout is delayed or offers limited protection to new and more virulent strains of Covid19 will return us to a scenario where the need for monetary policy stimuli increases.
Philip Rush
- Philip Rush
BoE: preparing policy like a Scout
- The BoE MPC voted unanimously in favour of no policy changes. Gilt purchases will continue at the same pace with a bias to slow later. Bank rate remains at 0.1%. Banks are instructed to prepare systems for a temporary negative rate environment. - Disagreement centred on whether instructing banks to rectify the operational hurdles to negative rates could occur without markets misconstruing it as an intent to deliver a cut. The tool will not be ready for at least six-months and remains unlikely ...
Philip Rush
- Philip Rush
Italy: Dragging in Draghi
- Political turmoil had returned to Italy, with the President scrambling to find an agreeable new Prime Minister. A resolution in the form of a technocratic government led by former ECB President Mario Draghi now looks set to be formally agreed. - The democratic deficit of another technocratic leader is likely to strengthen populist pressures. However, the postponement of election risk is a relief to markets, especially with such a well-respected figure being invited to the helm.
Philip Rush
- Philip Rush
EA: heavyweight uppercut for inflation
- Flash inflation releases for January have exceeded expectations to an almost ludicrous extent. Another spuriously aggressive methodological change has knocked the weight down on highly seasonal items and is likely to cause numerous surprises for years. - Expenditure data provided a good proxy of the weight changes in Germany. We have applied these factors across Northern Europe and an augmented version elsewhere, and are well-positioned to precisely incorporate the news once it’s announced. - ...
Philip Rush
- Philip Rush
UK: pay subsidised back to peak pace
- UK wage growth surged again in Nov-20 to comfortably exceed expectations, with a further rise in December likely to take the pace to its highest since 2008. Growth is broadly experienced, despite most industries laying off staff. - Lockdown in January has caused vacancies to be withdrawn again as demand for labour disappears. The rise in redundancies is also likely to temporarily reverse, though, amid the return of furlough, which should keep deferring the spike in unemployment.
Philip Rush
- Philip Rush
FLASH: UK Mfg PMI rises with room for more
- The UK’s manufacturing PMI increased to 56.3 in October, which was in the upper quartile of the Consensus. Some further strength is likely to occur as the UK survey reconverges with the euro area’s balance over 2-points higher.- Input prices and lead times are also rising amid “intense competition” for resources, which provides additional evidence of underlying inflationary pressures. The BoE still looks set to begin a hiking cycle with its upcoming decision.
Philip Rush
- Philip Rush
BoE preview: cautious first hike of several
Rapidly falling spare capacity and excessive inflationary pressure appears to have become intolerable for the MPC, whose hawkish guidance has raised expectations for a Nov-17 rate hike. I expect them to follow through by 8-1 votes. This hike would offset the upside inflation news since August, but leave the market pricing an insufficient tightening to balance the inflation risks around the target. Guidance on this and a “gradual and limited” cycle are likely to remain. There is a fundamental...
Philip Rush
- Philip Rush
FLASH: UK GDP acceleration leaves BoE on track
- UK GDP growth increased to 0.4% q-o-q in the ONS’s first estimate of Q2, in line with my forecast but 0.1pp above the consensus. Services didn’t grow as fast in August, but the July fall was trimmed along with volatility around the post-Brexit trend.- This outcome exceeded the BoE’s forecast from August but was probably in line with what they expected ahead of the release. It at least presents no reason to abort the rate hike widely expected for November, including by me.
Philip Rush
- Philip Rush
FLASH: UK labour market helping the MPC to hike
- The LFS unemployment rate held at 4.3% in August. Another fall to 4.2% could come as soon as next month in what would be an additional hawkish surprise.- Pay growth beat expectations at 2.1% y-o-y 3mma (ex-bonuses), amid revisions and a better impulse. New data show a less severe slowdown that has already ended.- A tightening labour market and reduced concerns about pay should help the MPC to hike Bank rate in November. I still see that as the start of a series of hikes.
Philip Rush
- Philip Rush
FLASH: UK Inflation Steady with Domestic Pressures
- CPI inflation ticked up to 3.0% y-o-y in September, as expected. However, RPI inflation held at 3.9%, thereby representing another downside surprise for this month, and supporting an extension of this evolving seasonal factor.- Domestically generated inflation also appears to have strengthened further in September. The inverse-import weighted CPI is now growing at 3.2% y-o-y, which is 1pp above levels historically consistent with inflation at the target.