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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

UK: no sales binge between prohibitions

- UK retail sales failed to recover from the November lockdown. Stricter prohibitions on activity in January have caused spending on cards to collapse back to May levels, which will be especially bleak for retailers who never enjoyed a festive consumption binge. - Mobility metrics have also stepped down in the new year, and now indicate a GDP retreat to its June levels. I assume the same in my bottom-of-consensus forecast, where the trough is shallower but is likely to have a flatter recovery th...

Philip Rush
  • Philip Rush

ECB: leaving space in its envelope

- The ECB announced no policy changes while declaring that it need not use all the space in its €1,850bn envelope for the PEPP. That merely recognises the reality that follows its current purchase pace and programme end date, but it’s a hawkish point to make. - Reduced emphasis on the euro also arguably reflects a less-dovish reality of reduced disinflationary pressure from this source. Specifically, the introductory statement dropped “very closely” from this part, while the press release droppe...

Philip Rush
  • Philip Rush

UK: inflation stepped up in Dec-20

- Upside news in the UK CPI and RPI inflation rates was concentrated in areas that do not exhibit a substantial payback relationship into Januarys. The resulting step higher is especially pronounced on the RPI where house price growth remains spiked to excess. - Despite the latest rise, underlying pressures appear to remain muted, with the median rate at 1.4% y-o-y not yet breaking the downtrend. Headline rates should fly through this on April base effects but the subsequent peak above 2% is lik...

Philip Rush
  • Philip Rush

EA: re-intensifying labour market pains

The notionally bullish trend decline in the euro area unemployment rate looks to be biased by Italy’s extended policy to ban dismissals and Eurostat extrapolating summer improvement. Renewed activity restrictions already appear to have been raising the UR. A belated rise in unemployment is anyway inevitable as extended furlough schemes end and bankruptcies rise from their artificial extremely depressed levels. Current output levels imply unemployment rises by 2-3pp for Germany, France, and Italy...

Philip Rush
  • Philip Rush

Brexit: Yippee Ki Yay, Negotiators

- The UK and EU negotiators have agreed a deal on their future trading relationship, broadly along the lines of the compromise we’ve expected for over a year. It should be approved by both parliaments, albeit with the European leg as a belated rubber stamp. - This deal remains a skinny one, focussed on goods, despite the fat legal text. Additional trade frictions are still likely to weigh on growth in 2021 and beyond, although such economic damage is small beer compared to the Covid-related cata...

Philip Rush
  • Philip Rush

UK: retail reverses gains since June

- UK retail sales were broadly battered by the second national lockdown in November, with a 3.8% m-o-m headline decline. High demand at food stores and weakness in clothing and fuel was unsurprising, but non-store sales failed to capitalise further. - The sector has reversed its recent gains by returning to the level from between June and July. A repeat of March’s GDP elasticity or a similar overall reversal would be less bleak than I previously assumed, but remains recessionary over the winter.

Philip Rush
  • Philip Rush

UK: inflation stripped in Nov-20

- The upside news from October’s inflation release more than unwound in Nov-20 as the CPI and RPI rates undershot forecasts by 0.3pp at 0.3% and 0.9% respectively. Garment prices stripped back much more than I had already dovishly assumed. - Payback in garment prices is negligible during Decembers. Shocks in insurance premiums also rarely unwind rapidly, so most of the downside news persists in my forecast. Base effects in the Spring should still kick inflation back up, with it exceeding 2% in D...

Philip Rush
  • Philip Rush

UK: productivity pains intensifying

- UK employment data beat expectations again in Oct-20 with only a 143k 3m-o-3m decline driving a 19bp rise in the unemployment rate to 4.94% (5.1% forecast). Furlough is likely to prolong adjustments and push more of the pain into productivity again. - Recessions routinely break productivity trends with permanent costs that are widely ignored. I remain a productivity pessimist, with recent data and policy intensifying this view. The UR peak I expect keeps pushing lower and later, to about 7% in...

Philip Rush
  • Philip Rush

UK: the method to underperform peers

- GDP growth more than halved again in October to 0.4% m-o-m, despite output still being almost 8% below its pre-Covid level. The ongoing upheaval of aggressively evolving restrictions killed the recovery even before the renewed destruction of lockdown 2. - The UK is still performing especially poorly relative to its peers. However, most of the real output shortfall is arguably related to the measurement of public services. Counting wasteful nominal spending risks overstating the future tax pote...

Philip Rush
  • Philip Rush

UK: buyer beware for creditors

- Downgraded growth forecasts and increased expenditures drove another large rise in the Spending Review’s projections for public sector net borrowing. However, my bottom-of-consensus view for growth in 2021 creates risks of even more borrowing. - Despite the desperate need for supportive creditors, the government sanctioned a permanent reduction in the RPI inflation measure that will be materially detrimental for inflation-linked gilts. No compensation will be offered in good faith… its buyer b...

Philip Rush
  • Philip Rush

UK: narrow retail rise in broad recession

- UK retail sales exceeded expectations again with a 1.2% m-o-m surge in October. It was driven by an extension of recent trends. Specifically, the rotation towards consumption both from and for the home environment ahead of another lockdown within it. - The reliance on consumer goods over services remains negative for overall GDP, which is set to be smashed again by restrictions this winter. Divergence within the sector has also increased with the broad experience recessionary while a small set...

Philip Rush
  • Philip Rush

UK: price rises over-dressed in Oct-20

- Inflation increased by a tenth more than we expected in October to 0.7% y-o-y on the CPI and 1.3% on the RPI. Upside news in clothing prices is likely to be short-lived owing to the payback relationship into Novembers being the strongest of the year. - The extent of the seasonality around yearend remains a key uncertainty in our forecast profile. A return towards the target should only occur in the Spring amid sizeable base effects, while the inflation outlook is unlikely to threaten the BoE’s...

Philip Rush
  • Philip Rush

UK: stumbling into a fall for winter

- GDP growth continued to slow in September to a mere 1.1% m-o-m. Losing momentum at this rate implies over a quarter of the lockdown hit would fail to be mechanically recovered. A second lockdown in November is set to compound the economic damage. - Mobility metrics have only fallen to August levels as the public appears to be reluctant to stay home this time. However, prohibitions on economic activity mean the hit to output is still set to be large, where I assume a level similar to June.

Philip Rush
  • Philip Rush

UK: record redundancies in Sep-20

- The unemployment rate increased again to 4.76% in Sep-20, which was only 1bp above my forecast. A rise in redundancies to a record high of 314k is driving up the UR amid a stagnant labour market. Vacancies continue to imply that the UR will peak near 7.5%. - Average wages have now extended their recovery back to their pre-Covid trend. That bullish experience is not one that most employees will recognise, though, amid job losses in low paying industries creating a supportive sampling effect.

Philip Rush
  • Philip Rush

BoE: QE for time and space over pace

- The BoE downgraded its forecasts, as expected, returning to a more conventional policy trade-off in the process. Risk management considerations encouraged the MPC to exceed expectations, which it did by announcing a £150bn increase to the QE target. - This announcement encompasses the next increase I expected for February. It also creates room to maintain a tapered pace from May for three months longer than I expected, to Nov-21. The space to respond to market malfunction may matter more.

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