Archive

UK: Stickier CPI Than BoE Assumes

• UK inflation’s base effect-driven slide was stickier than the BoE expected in January, only reaching 3%. Core and services inflation hawkishly drove the resilience.
• Underlying inflation measures broadly remain stuck above levels consistent with the BoE’s 2% target, although it assumes the problem away with a dovish bias.
• We still expect the BoE to wait until 30 April before cutting again. It won’t see another inflation print until after the 19 March meeting, and there is good reason for caution.

By Philip Rush

RBNZ Holds, Normalisation Deferred

• RBNZ held its OCR at 2.25% as expected, with a shallow projection implying first hikes only from late 2026 or early 2027.
• The baseline keeps policy accommodative through 2026, contingent on spare capacity and core inflation easing towards 2% as projected.
• Risk balance is two‑sided: faster closing of the output gap could bring hikes forward, while weak demand would keep the OCR on hold all year.

UK: A Lame Horse Year?

• The UK labour market ended 2025 on a disappointingly feeble note, with unemployment rising to 5.2%. Methodology and tax contributed, so the cyclical change isn’t so bad.
• Wage growth also slowed in 2025, with disagreement about the extent. Most measures remain above 4%, although the distorted public vs private split depressed the latter.
• Dovish BoE assumptions can lean on labour market weakness to cut again soon. We still lean towards the 30 April MPR, but soft CPI inflation could push Bailey to 19 March.

By Philip Rush

BoE Failure is Institutionally Ignored

• Bank staff ignored the possibility of excess inflation expectations when finding no structural change in an irrelevant construct that persuaded dovish dissents in February.
• Staff can’t be expected to tell their leaders of their policy failure. Firms and households expect further excesses in price and wage inflation, but the MPC is not listening.
• The 2% target has become a floor only broken by substantial temporary shocks. Loose fiscal policy enjoys this excessive accommodation, and both biases will likely persist.

By Philip Rush