May 06, 2021
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BoE: activist leaves the hawkish roost

  • The BoE MPC voted to keep all its policy levels unchanged in May, although Chief Economist Andy Haldane dissented in favour of lowering the gilt purchase target by £50bn. That would effectively mean terminating purchases in Aug-21 instead of Nov-21.
  • Forecast revisions raise GDP and squash the unemployment rate. Potential GDP matches the demand upgrade to maintain an economic balance in 2yrs when inflation is also seen at target. Tweaked guidance removes the apparent dovish near-term bias.
  • Gilt purchases have been tapered, as we expected, to stretch them until November. A return of restrictions and failure to recover GDP may yet prompt another extension.

May 05, 2021
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UK: saving the precautionary motive

  • There is a growing optimistic consensus that many households will treat the pandemic impact on savings as a windfall to spend. Falling annuity rates offset the effect of rising assets for retirement income, although that has partly unwound recently.
  • The post-pandemic policy toolkit presents new risks that household balance sheets need to reflect through more housing services and a higher precautionary savings buffer.

April 29, 2021
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Reflationary decoupling

  • Surging US inflation arguably risks spilling over to Europe amid a high degree of co-movement between them, but the relationship can break up like it did in 2005-06.
  • The spillover of US reflation is likely to be incomplete, especially to the euro area, so relative price level hikes can be sustained for inflation-linked instruments, in our view.