Episode summary
UK Firms’ Price, Wage Expectations Edge Down in BOE Survey
Bloomberg Surveillance
· · 8 min · Guests: Jordan Rochester, Laurence Mutkin
Summary
Jordan Rochester argues the Bank of England is still too cautious on rates and should be pricing more cuts, not fewer, because UK data are already pointing to weakness. He says the Bank is relying on stale wage figures while job losses are starting to show up in surveys and leading indicators, which he thinks argues for monetary policy to move below neutral.
He links the UK outlook to a broader disinflationary backdrop. He says China’s excess supply, softer food prices, and lower cocoa prices are all pulling inflation down, while oil is not the main concern he wants to focus on. On rates and bonds, he says the trade is for gilts to outperform U.S. Treasuries and for front-end Bank of England contracts to price in more easing.
On the real economy, he says Europe’s defense and infrastructure plans are still more visible in issuance and contracts than in hard data, and Germany remains in structural industrial recession because of uncompetitive energy costs. For the UK, he expects the labour market to keep signalling job losses, while regional housing and spending patterns continue to show a split between London and the rest of the country.
Key takeaways
- Rochester thinks the Bank of England is too stubborn about cuts and should move below neutral, not just toward it.
- He expects gilts to outperform U.S. Treasuries and front-end Bank of England contracts to price more easing.
- He says China’s excess supply and weaker food prices are extending global disinflation.
- He argues the UK labour market is already weakening, with surveys showing hiring intentions have “fallen off a cliff.”
- He says Europe’s infrastructure and defense spending is real in announcements, but not yet in hard data.
Notable quotes
“The Bank of England has been very stubborn in my mind about rate cuts”
“The data in the UK, in my mind is actually saying you don't need to get to neutral guys, you need to go below neutral”
“we really like outperformance of gilts versus U.S. treasuries”
“China has been exporting this inflation for quite some time now”
“It's Lehman Brothers or Covid in terms of historical parallels to how much they've fallen”
How the episode opens
The most risk we have is the better way to say it. So yeah, we've got a lot of traits over the dollar, the euro, the yen and the sterling, and this is the one with the highest conviction. The Bank of England has been very stubborn in my mind about rate cuts.
At the last meeting, they were signalling that the near the end of the rate cutting cycle, there's been a huge debate amongst the Fed, ECB, Bank of England and DOJ about where is neutral, where's our star? And let's just get to neutral and see how things play out. The data in the UK, in my mind is actually saying you don't need to get to neutral guys, you need to go below neutral and you start talking about being looser with your monetary policy.
Bank of England's currently looking at pretty stale data. In my mind, they're looking at the wage data, which is pretty pretty strong. Sure, but we're seeing job firing in the UK.
So what that means is in terms of trade, we really like outperformance of gilts versus U.S. treasuries. We like the outperformance of front end Bank of England contracts.
We're looking to price them more rate cuts from the Bank of England. And I think over the next couple of months we're going to get the confirmation in the data from the official, from what we're getting from our leading indicators in the surveys. And we had somebody on yesterday talking, the surprise could be ECB rate cut.
Can I go Nerd fest history? Okay, Jordan, let's go history here with British guy Neil Dunn is writing up about the Beveridge curve Beveridge of LSC, the London School of Economics. You've got the disinflation and deflation of middle 20th century and Clement Attlee, England.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- boe survey
- uk wage expectations
- inflation outlook
- employment outlook
- gbp trading
Companies and tickers mentioned
- BMO
- BMO Capital Markets
- Mizuho EMEA
Watch the episode
Watch “UK Firms’ Price, Wage Expectations Edge Down in BOE Survey” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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