Deutsche Bank’s Sanjay Raja notes that UK GDP and labour market data have come in weaker than the Bank of England’s February projections, while January CPI surprised to the upside. The Iran-related energy shock is expected to further lower GDP, raise unemployment and push inflation higher in the near term, complicating the Monetary Policy Committee’s trade-offs on growth and prices.
Weaker data and new energy shock
“Past news is likely of little interest to the MPC–given unfolding geopolitical events. Nevertheless, it could form the starting point for the MPC’s deliberations.In short, the economy is a little weaker than previously thought, with Q4-25 GDP growth missing expectations.”
“Based on similar elasticities used in the May 2022 MPR, we estimate current market moves to lower GDP growth by 0.25pp in 2026, 0.1pp in 2027, and an unchanged 2028 GDP growth rate.”
“The weaker starting point on the quantities side of the labour market probably will already be worrying for the MPC. We expect January data to show a further increase in the jobless rate to 5.3%–a report the MPC will have had early access to.”
“Based on current market moves, informal Bank projections, we think, could show not just a faster ascent in the jobless rate but a peak in the jobless rate of near 5.4%–a tenth above Feb MPR levels.”
“In short, market conditions will lead to lower growth, higher unemployment, and higher inflation.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/uk-growth-jobs-and-inflation-under-strain-deutsche-bank-202603131206
