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The Bank of England was never going to do anything except keep interest rates at 5.25% this week, but we and the financial markets were surprised that it took further steps in preparing the ground for the first interest rate cut. (See here .) As a result, …
22nd March 2024
Data released this week broadly support our view that the euro-zone economy will have stagnated in Q1. The Composite PMI rose a touch in March but remained consistent with GDP flatlining. And the ZEW painted a similar picture. Admittedly, we also learned …
Pressure building in Turkey ahead of the election Pressures on Turkish policymakers are building ahead of the local elections on 31 st March as capital inflows have slowed and FX reserves are falling again. We doubt the central bank will hike interest …
15th March 2024
January’s GDP figures received the most attention this week, mainly as they suggested the economy may have exited recession. (See here .) But while there was better news on demand, the same cannot be said for the supply-side of the economy. The rise in …
ECB postpones some big decisions After 15 months of waiting, this week the ECB finally published the outcome of its operational framework review. We set out the key points here . In the near term, the status quo will largely be maintained, with the …
June rate cut coming The main event this week was the ECB meeting on Thursday where the key message was that officials are getting closer to easing policy but want to see more evidence that wage growth and underlying inflation are moderating before …
8th March 2024
Setting the record straight on recent HUF weakness The dispute between the Hungarian central bank (MNB) and the government heated up further this week, which has fuelled a narrative that threats to central bank independence are responsible for the recent …
Much ink has been spilled on the Spring Budget this week. For our part, we discussed the macroeconomic and financial market implications in our UK Drop-In and in our UK Economics Focus . The main takeaway is that while the Chancellor was desperate to use …
Turkish GDP growth continues to run hot Data released this week showed that Turkish GDP growth unexpectedly re-accelerated in Q4, which challenges the view that recent aggressive monetary tightening is rebalancing the economy. We published our initial …
1st March 2024
Could there be a tax-cutting Budget bombshell? The rumours this week suggest that the Chancellor may have a bit less to play with in the Budget on Wednesday 6 th March than the £15bn we estimated. As a result, he seems to be considering more revenue …
The main data releases in the euro-zone this week will have done little to dispel ECB policymakers’ view that they should wait patiently before making a decision on when to cut interest rates. Economic activity appears to have made a slow start to the …
Checking in on clean energy equities The MSCI Global Alternative Energy Index has outperformed the standard MSCI World Energy benchmark since we published an Update in November arguing that we had reached peak-pessimism for clean energy equities. (See …
29th February 2024
Wage data still offering reasons for caution The latest wage data released out of Poland and Hungary this week showed that labour cost pressures have remained very strong in parts of Central and Eastern Europe (CEE). So despite another slew of …
23rd February 2024
Disappointing economic and fiscal forecasts from the OBR haven’t prevented the Chancellor, Jeremy Hunt, from unveiling a splash at previous fiscal events. This time last year, he was handed £14.5bn of headroom against his fiscal mandate to ensure the …
This week saw a raft of data releases as well as the publication of the ECB accounts . We think that there are three key takeaways . First, the broad trend of economic stagnation and disinflation in the euro-zone is continuing. The Composite PMI edged up …
Ratings downgrade highlights realities in Israel The decision by Moody’s to deliver Israel’s first credit rating downgrade in its history late last week is a warning sign to policymakers that the strength of the public finances should not be taken for …
16th February 2024
It’s debatable whether the 0.1% q/q and 0.3% q/q contractions in real GDP in Q3 and Q4 2023 should be labelled as a recession given the falls were so small. While it satisfies the usual definition of a recession being two consecutive quarters of falling …
The German Economy Minister Robert Habeck admitted this week that the economic situation was “dramatically bad” and said the government would reduce its 2024 growth forecast from 1.3% to 0.2%. The new forecast is a bit lower than the Bundesbank’s latest …
Is euro adoption the path forward for Czechia? The Czech government’s debate on adopting the euro reignited at the start of this year and took another step forward this week, although we think that the potential benefits of joining the single currency …
9th February 2024
A lot of data is being released next week and it might not be a good look for the UK economy. The release of January’s CPI inflation figures on Wednesday may reveal a second rise in as many months, from 4.0% in December to 4.1%. Within that, both core and …
This week, ECB policymakers again pushed back against the prospect of an imminent rate cut, with Executive Board member Isabel Schnabel saying that policymakers “must be patient and cautious”. Ms Schnabel’s main concern was that more clarity is needed on …
The Bank of England caused a lot of waves in the media and some ripples in the markets this week. But it hasn’t altered our thinking that lower inflation than the Bank of England expects will mean rates are cut from 5.25% to 5.00% in June and all the way …
2nd February 2024
EM Drop-In : We'll be discussing EM policy easing, debt risks and the outlook for bond yields in our monthly EM drop-in on Thursday 8th February . Register here . Ukraine aid deals ends a week of uncertainty Hungary dropped its veto against the EU’s …
Price hikes back on the menu Data released this week support the case of ECB policymakers who are concerned about the strength of domestic inflation. January’s European Commission business and consumer survey, released on Tuesday, suggested that selling …
Carbon pricing in the news Amid a flurry of news and action in carbon markets in recent months, this note examines the details and implications of developments around the world, starting in the EU. The EU’s Emissions Trading Scheme (ETS) is the world’s …
31st January 2024
Hungary skating on thin ice with new rate proposal The proposal by the Hungarian government this week to change the reference rate used to price bank loans risks undermining the central bank’s (MNB’s) independence and presents a further upside threat to …
26th January 2024
Most commentators and investors seems to have concluded that yesterday’s ECB meeting paved the way for an April rate cut despite President Lagarde explicitly standing by her view that the summer was more likely. We disagree and now see the risks skewed …
In last week’s UK Economics Weekly we highlighted the lingering upside risks to inflation, which were emphasised in this week’s release of January’s flash PMIs. (See here .) But this week, we need to talk about the risk of deflation. We’ve been …
This week’s data releases called into question our forecast that the UK economy will experience a soft landing, by which we mean inflation falling back to the 2.0% target without a big contraction in GDP. Could cigarettes and containers ignite the CPI? …
19th January 2024
Data released this week suggest that the euro-zone economy may have contracted a bit more than expected at the end of last year. Germany’s first and “very preliminary” estimate of Q4 GDP suggests that it fell by 0.3% q/q. (See here .) And euro-zone …
Inflation data surprise to the downside The softer-than-expected December inflation data released across Central and Eastern Europe (CEE) this week suggest that further interest rate cuts will be delivered across the region over the coming months and, in …
12th January 2024
The rebounds in CPI inflation in both the US and the euro-zone in December (from 3.1% to 3.4% and from 2.4% to 2.9% respectively) raise the question of whether the downward trend in the UK will also stall. After all, inflation in the UK has been following …
At the ECB’s last meeting in December, President Christine Lagarde insisted that it was too early to discuss rate cuts. But the first comments of 2024 from policymakers, including Ms Lagarde herself, suggest that policy loosening may not be too far away. …
There are still plenty of downside risks to our below-consensus forecast that the economy will stagnate in 2024 with GDP growth of 0.0%. (See here .) But the news over the past week has highlighted three upsides. First, the slide in 2-year and 5-year …
5th January 2024
Data released this week support our key calls on the euro-zone for the upcoming year. First, the economy looks likely to be weaker than most anticipate. Although the final euro-zone Composite PMI for December, released on Thursday, was revised up from the …
Fiscal rules no game changer for CEE public finances EU finance ministers agreed on a new set of fiscal rules this week, but this doesn’t change our view that concerns about public debt dynamics will grow in parts of Central and Eastern Europe (CEE) over …
22nd December 2023
Revised data showing that real GDP contracted by 0.1% in Q3 has fuelled the debate as to whether the UK entered a technical recession over the second half of this year. But focussing on small falls (or increases) in GDP misses the point: the bigger …
ECB is talking but investors aren’t listening This week brought more pushback from ECB policymakers against expectations for rates to start falling in the first half of next year. But investors have largely ignored them, and arguably for good reason. …
21st December 2023
Russia’s economic hit: just how large? Analysis by the US Treasury Department published this week gained a lot of attention for highlighting that Russia’s economy is now 5% smaller due to the war and sanctions than it otherwise would have been. The blog …
15th December 2023
If the main objective this week of the Bank of England’s Monetary Policy Committee (MPC) was to keep interest rates unchanged at 5.25% and avoid fuelling even more bets on rate cuts, then it looks like a case of mission accomplished. Even so, the Bank’s …
ECB is not for turning… yet In contrast to the Fed, but similar to the Bank of England, this week the ECB pushed back against expectations that it would start to cut interest rates in early 2024. (See our Drop-in here .) In the ECB press conference, …
What we’ve learned from the State Tribunal drama The debate around whether Polish central bank governor Glapinski could be brought before the State Tribunal and be removed from his post took more twists and turns this week. But at this stage the events …
8th December 2023
The further drop in UK market interest rate expectations this week means that investors now think the first interest rate cut will happen in June next year instead of August. And investors are now pricing in an 80% chance of a cut by May. That has led to …
Note: We’ll be discussing the Fed, ECB and Bank of England December decisions and the policy outlook for 2024 in an online briefing on Thursday, 14 th December . Click here to register for the 20-minute session. Last week we brought forward the timing of …
Investors increased their expectations for interest rate cuts by the ECB after November’s soft euro-zone inflation print this week, but in parts of Central and Eastern Europe (CEE) the latest developments suggest inflation will take a lot longer to fall …
1st December 2023
In light of the inflation and activity data released this week we are bringing forward our forecast for the start of the ECB’s rate cuts from September to June next year. And we now think the deposit rate will come down from 4.0% currently to 3.0% by the …
The prospect of earlier interest rate cuts in the US and the euro-zone has led to a sharp fall in US and euro-zone government bond yields this week. 10-year US Treasury and German Bund yields have fallen by 15 and 22 basis points (bps), to 4.32% and 2.43% …
CBRT bringing tightening cycle to a close Turkey’s central bank (CBRT) delivered another chunky 500bp rate hike to 40% this week but it also signalled that its tightening cycle was very close to an end. The local elections in March may be playing a part …
24th November 2023
We continue to think the euro-zone economy will fall into recession in the second half of this year and roughly flatline in the first half of next year. This is mostly due to the impact of squeezed household incomes and the tightening of monetary policy, …
It’s true that the Chancellor’s pre-election splurge unveiled in this week’s Autumn Statement was the largest discretionary fiscal loosening (outside of the Covid period) since 2010. And at £20.3bn (0.6% of GDP) in 2028/29, it was the biggest tax-cutting …
