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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

Australia Unemployment Rate 3.84% (consensus 3.9%) in Mar-24

- Australia's unemployment rate in Mar-24 increased by marginally less than the consensus forecast, indicating relative stability in the labour market.
- However, the 3.84% rate remains higher than the one-year and long-run averages, and employment decreased, signalling weaker demand.

EA Inflation Subdued Enough for the ECB

• The final EA HICP inflation print confirmed the downside surprise to 2.4% from the flash release. Progress gets more challenging as energy and food base effects wear out.
• Although services inflation is stuck at 4%, that is far better than the UK’s 6%, and the median inflationary impulse is broadly settling below the ECB’s target.
• Labour costs might remain inflationary, but the ECB seems to have sufficient confidence to cut in June unless the data surprise significantly to the contrary.

By Philip Rush