March 23, 2021
2021-03-23 lab_head.png

UK: labour market locked down tight

  • The UK unemployment rate declined to 5% in Jan-21, contrary to expectations for an increase. It was, at face value, caused by a drop in participation but is likely to reflect a repeat of the response-bias that unwound after the first lockdown.
  • Vacancies recovering pre-covid norms won’t prevent a belated rise in the UR. Kickstart listings have arrived, raising these vacancies beyond the pool of eligible candidates.
  • Furlough and grants for the self-employed continue to freeze the labour market in a tight setting, contributing to the strength in wages. Disappointment to the consensus in Jan-21 matched the signal driving our forecast, which has since rebounded.

March 18, 2021
2021-03-18 boe_head.png

BoE: taper-ready for May

  • The BoE MPC voted unanimously in favour of no policy changes, as widely expected, and its asset purchase pace will remain unchanged. It sees “flexibility to slow the pace of purchases later” and we still expect that to occur when this is next reviewed in May.
  • Optimism still prevails at the Bank and it will take time for our gloomy call on the long term damage to become clear. That makes rate hikes a remote prospect and raises the risk of an extension to QE beyond Nov-21 when we expect the tapered pace to end.

March 17, 2021
2021-03-17 global_head.png

De-globalisation’s macro impacts

  • Globalisation in recent decades both lowered and flattened the Phillips Curve, making domestic inflation more dependent on the global rather than the domestic output gap.
  • We believe that the drive for supply chain security is pushing this process into reverse and that the post-pandemic world will have a higher and steeper Phillips Curve.
  • Inflation will be higher for a given set of unemployment data, especially if there’s a global schism. Policymakers will respond more to output and risk overstimulating.