March 24, 2021
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UK: disinflation during lockdown disaster

  • UK inflation disappointed in Feb-21 as it slowed to 0.4% y-o-y on the CPI and held at 1.4% on the RPI. Garment prices were the weakest on record for a February CPI. Games also weighed on the CPI, with some payback likely, while the RPI was more hit by insurance.
  • Locked down clothing shops have struggled to shift stock, smothering a strange surge from 2020 at the start of 2021. Our forecasts are lowered by the news, especially on the RPI. Hawkish labour market news should at least offsets this for the BoE, in our view.

March 23, 2021
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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
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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.