Archive

UK CPI Stickier For Longer

• UK inflation data confirmed the substantial upwards drift in the consensus, worth 0.6pp since May and 1.1pp over the past year, while matching final forecasts for August.
• The consensus has shifted further than usual over the past month. It now aligns with our hawkish forecast until April, when hope again dominates in dragging inflation down.
• Although the MPC won’t be shocked by this outcome, the persistent excess in underlying inflation still seems set to keep it holding rates. We do not expect cuts to resume.

By Philip Rush

Fed Cuts Amid Deep Policy Division

• Fed cuts rates 25bp as expected, with new Trump appointee Miran dissenting for a 50bp reduction.
• Labour market weakness drove the policy shift as job growth averages 29k monthly, below the levels likely needed to maintain stable unemployment.
• Projections show a 9-9 split between one or two more cuts in 2025, and only one more in 2026. The FOMC is not as dovish as the market's pricing.

UK Jobs Find Their Floor

• Stability in unemployment at 4.66%, while payrolls only marginally decline, suggests the labour market has found its floor before disinflationary pressures accumulate.
• A narrative-breaking improvement could occur next month. Tax rises structurally explain the scale of the previous shock, with weakness seemingly not going beyond that.
• Excess supply is needed to break wage growth to a target-consistent trend. Without that, the MPC should hold rates before potentially reversing by raising them in 2026.

By Philip Rush

HEW: Crystalising Policy Divergence

• Spreads between ECB and Fed expectations widened again this week as the ECB held rates with a neutral bias while disappointing US labour market data drive dovish hopes.
• Underlying US services inflation was soft, and initial jobless claims spiked, albeit over Labor Day. We think US pricing has gone too far, and political pressure won’t dominate.
• Guidance with the Fed’s upcoming cut could start to correct that. The BoE will hold rates, after more hawkish macro news next week, and should trim its QT plan this year.

By Philip Rush