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BoE: Hawkish Surprise Set For November

• Markets have erroneously repriced a BoE rate cut as potentially imminent and repeated. Policymakers are tending to surprise hawkishly in the UK and elsewhere recently.
• Downside news on excess inflation is mild, while the activity data have, if anything, exceeded BoE forecasts. Pay growth signals remain strong, not disappointing the BoE.
• Six MPC members have favoured slower easing, inconsistent with a November cut. Fiscal consolidation is unlikely to frontload a shock large enough for the MPC to accommodate.

By Philip Rush

RBA: Cautious Hold in Uncertain Times

• The RBA held its cash rate at 3.6% as anticipated, but its decision marks a shift from easing after September's inflation surprise, signalling an extended pause in rate cuts through at least mid-2026.​
• Central forecasts now project trimmed mean inflation above 3% for the coming quarters before settling at 2.6% in 2027, requiring mildly restrictive policy rates of 3.4% by mid-2026—materially slower easing than many forecasters anticipated.​
• Labour market softening provides limited comfort as elevated vacancies and wage pressures persist. Two-sided uncertainty around demand strength and the global outlook creates risks justifying a cautious approach to future cuts.

HEM: Nov-25 Views & Challenges

• Pushback by Powell and peers trimmed some excessively dovish pricing, but the BoE converged down on poor data.
• The BoE should also resist pressure as underlying issues are unbroken by relatively marginal recent payback.
• We now see markets overpricing easing most in the UK. More weakness is needed to signal a threatening trend.

HEW: Cautious Committees

• Central bankers broadly delivered on expectations this week, while cautioning that changes will likely be less than markets assume. The BOJ and ECB were also cautious.
• Flash EA inflation slowed, as expected, but services and core stoked hawkish pressure, while money and credit data in the EA and UK show accommodation of inflation.
• Next week’s BoE decision is no longer priced as a forgone conclusion, but the case to cut is weak. Like its peers, the BoE should cautiously damp dovish expectations.

By Philip Rush