Archive

Ramsden - Outlier or laggard: divergence and convergence in the UK’s recent inflation performance

Dave Ramsden provides an update on his assessment of the evidence on what has caused the UK’s inflation. The evidence covers the key indicators of inflation persistence and associated analysis and what this implies for the extent to which the risks from persistence are receding.

In his speech, Dave Ramsden discusses the recent inflation performance in the UK, focusing on the persistence of inflationary pressures and the risks associated with them. He highlights that the UK was previously an outlier in terms of inflation performance but is now becoming a laggard, catching up to the levels seen in the US and Euro area. Ramsden expects headline CPI inflation to fall sharply in April, close to the 2% target. He notes that inflation expectations have decreased, leading to weaker pay growth, which in turn has started to impact services inflation. Overall, Ramsden concludes that the balance of domestic risks to UK inflation is now tilted to the downside.


Positivity: 80
Uncertainty: 60

HEW: Reflating Tighter for Longer

• This week, the absence of policy decisions was no barrier to further hawkish moves as UK price and wage inflation exceeded expectations, and FOMC comments reopened the possibility of another rate hike. We still believe the BoE should cut later than the Fed.
• It’s another quiet week ahead for monetary policy announcements, with the BOJ and Bank Indonesia the main ones. The flash PMIs are our data highlight, notwithstanding the Q1 GDP, March PCE and durable goods data from the US.

By Philip Rush

BoE Should Move Behind the Fed and ECB

• Hawkish surprises in the UK and US data pushed back rate cut pricing. Dovish comments from Bailey still weigh on BoE rates, inappropriately keeping pricing below the Fed.
• Underlying inflationary pressures are worse in the UK, where wage growth is persistently high and not backed by productivity, causing the UK’s services inflation to be higher.
• Prevailing policy settings don’t seem set to drive down UK inflationary pressures before the US. Unemployment is trending similarly, suggesting similar monetary tightness.

By Philip Rush

de Guindos - Presentation of the ECB Annual Report 2023 to the Committee on Economic and Monetary Affairs of the European Parliament

Introductory remarks by Luis de Guindos, Vice-President of the ECB, at the ECON Committee of the European Parliament

In his remarks, Vice-President of the ECB, Luis de Guindos, discusses the economic outlook for the euro area and the monetary policy decisions taken by the ECB. He mentions that euro area growth slowed in 2023 and that inflation declined over the course of the year. Economic indicators suggest a weak start to the year, but gradual recovery is expected. Inflation is anticipated to continue declining, although at a slower pace. The ECB raised its key policy rates in response to heightened inflation and will maintain restrictive policy rates for as long as necessary. Liquidity will be provided through various instruments, including regular refinancing operations and new credit operations. The financial sector in the euro area remains strong, but challenges could arise from weakened growth prospects, prolonged inflation above target, or geopolitical risks. Legislative work is needed to close gaps in the banking union. Additionally, progress is necessary in advancing the capital markets union (CMU) agenda.


Positivity score: 80
Uncertainty score: 70