00:00When you look, first of all, at UK inflation here in the UK, what does that mean for the BOE decision?
00:07It seems to be making their life a little bit easier.
00:10Yeah, I think it does. And the surprise slowing of UK inflation this morning, which was fairly broad based,
00:16we think doesn't just add to the chances of a rate cut tomorrow.
00:19We actually think tomorrow we could see more people than we previously thought voting for a cut,
00:24perhaps even an 8-1 split or Taylor voting for a 50-bit cut as well.
00:30But looking ahead, we could even see, you know, we've seen more aggressive pricing for cuts next year.
00:35It could raise the probability of more cuts than we currently think happening next year.
00:41So when you look into next year, are we going to see a bit more stickier inflation?
00:45Again, the UK is a little bit more complex because of domestic issues, some of the labour policies put in place.
00:51And again, it's a small open economy.
00:53Yeah, exactly. So global factors play such a key role in UK inflation.
00:58But aside from any surprises, we do see it slowing back towards target next year.
01:03And of course, that's what we think will allow the Bank of England to cut the policy rate into what it sees as broadly neutral territory,
01:11which is quite a wide range, admittedly, of 2% to 4%.
01:15What does it mean in terms of, you know, if you look at the differential between the US and the UK, but also the Bank of Japan,
01:23is there a danger that, you know, the Bank of England governor needs to look at this?
01:27And actually, he has been the deciding vote.
01:29How much does he think about external factors?
01:32Yeah, of course. And, you know, the US cutting rates more next year.
01:36We see two more rate cuts next year.
01:38Can, of course, policy rate differentials can play key roles in FX moves and therefore inflation, in particular through import prices.
01:47We currently don't see those two cuts we expect in the US adding to our expectations of rate cuts next year.
01:54We see one more rate cut after tomorrow happening in April.
01:58But, of course, if the US economy surprises us to the downside next year, if GDP growth is slower and there are more rate cuts in the US,
02:07you know, then we might be looking at how that will impact the UK.
02:10And, Josie, is this regardless of who's the next Fed chair?
02:14Well, we do see the possibility that the next Fed chair will be more dovish.
02:18We'll play into the probability of rate cuts next year.
02:21We don't expect any more rate cuts under Powell being chair.
02:25And we also do actually expect factors like AI to raise GDP growth in the US next year.
02:30And we still expect cuts despite that because we do expect the next Fed chair to play a role in adding it to reasoning for them.
02:39Josie, what's your take on ECB?
02:41So we had this fantastic interview with Isabel Schnabel that's kind of changed the way that the market perceives the ECB interest rate dynamic.
02:50Do you think the next, you know, the next move is a hike and how soon could we get it?
02:55In terms of the next move, we think that will be driven by a shock, not fundamentals, because, you know, at 2%, the policy rate in the euro area is neutral.
03:06And the ECB has been clear that it is in a good place.
03:09And so, you know, we think there are actually many downside risks to inflation next year.
03:14We don't expect a cut.
03:15We expect it to remain at 2%.
03:17But things like slowing wage growth, you know, the recent appreciation of the euro are factors that can add to slowing inflation.
03:25And indeed, base effects from energy will, we think, contribute to slower inflation, particularly at the start of next year.
03:32We think they'll look through that, but it will still play a role in slowing inflation.
03:37What's the biggest problem Europe is facing right now?
03:39I know it's, you know, competitiveness is not where it should be.
03:43Productivity, there's a lot of concern about, for example, politics in Germany and France, even with a lack of a budget.
03:50Will that overshadow some of the economic prowess of the region next year?
03:54Yeah, I mean, we're really excited by German fiscal spending.
03:57We think this is a key theme looking into next year, and this will boost GDP growth.
04:02But obviously, we've got to balance that with fiscal tightening in places like France and Spain.
04:07We think, you know, it will contribute to growth.
04:09We see growth picking up to 0.4% quarter on quarter by the end of next year.
04:14And we do think also, you know, increased defence spending will feed into that, as well as the gradual increase in growth of consumer spending,
04:22particularly perhaps as savings rates ease, because that's a key question about in the UK as well,
04:27whether they will ease.
04:29And so we are quite positive on growth, but there are these risk factors, including perhaps slower spending from the government,
04:36the German government.
04:38If that, you know, comes in surprisingly slowly, then that could push growth further into the future.
04:43And Josie, when it comes to the Bank of Japan, they're just going the other way.
04:46How difficult is it to go against the grain?
04:48Yeah, well, you know, Japan, you know, it beats to its own drum.
04:51It we do think that this week they will definitely hike.
04:56But then actually we see a pause for all of next year and then two more hikes in 2027.
05:02And so we do actually see inflation slowing next year.
05:05And that's why we don't think that there'll be those hikes for a year.
05:09Well, they'll take a pause.
05:10But this week they'll hike.
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