Archive

HEW: Easing Before The Festive Storm

• The BoE FPC cut capital requirements in a surprise macroprudential easing that adds to the less-tight fiscal policy to lessen the need for BoE rate cuts, but one is coming.
• UK CFOs reveal no progress in breaking excessive inflation expectations for 18 months, EA inflation surprisingly rose, and the worst PMIs improved as resilience broadened.
• Another Fed cut is firmly priced, setting it up to be delivered, but members are likely to dissent against it and remain cautious in only forecasting one more cut in 2026.

By Philip Rush

India: Goldilocks Gives Way to Constraints

• RBI cuts repo rate by 25bps to 5.25% as expected, citing exceptional disinflation (0.25% October CPI) and 8.2% growth, though maintaining a neutral stance signals easing cycle may be nearing end.
• It forecasts headline inflation to fall to 0.6% in Q3 before rebounding sharply to 2.9% and 3.9% subsequently, limiting the scope for additional rate cuts despite growth moderating from current highs.
• Durable liquidity injections alongside rate cuts acknowledge monetary transmission constraints. The consensus sees 5.25% as the terminal rate, with policy dependent on inflation normalisation and external sector stability.

BoE Survey Says Stagflation Survives

• CFOs keep telling the BoE their prices will rise by 3.5% in 2026, with wage increases similarly substantial. There has been no significant break lower in over 18 months.
• Employment plans have also deteriorated, lending some support to the dovish case as well. But this side is an unreliable signal, while inflation has proved brutally accurate.
• Doves need the employment aspect to be true, but the transmission to prices not to be. This survey signals upside inflation risks that should discourage rate cuts in 2026.

By Philip Rush

Activity Thaws Into Winter

• The worst services PMIs thawed in November, broadening growth even as averages held steady. Activity in the US services ISM has trended up to exceed the PMI data now.
• A slight fading of stagflationary pressures in the latest US surveys probably balances out in the Fed’s policy trade-off. We still fear that it is easing excessively.
• Rising unemployment rates in the US and UK are concerns not experienced in most of the world. This theme feeds their recent divergence from the global surprise tendency.

By Philip Rush