UK: Losing the plot - Nomura

Analysts at Nomura note that since September, when the BoE MPC signalled that an imminent rate hike was likely, our Nomura UK surprise index (and the Bloomberg version) has been above zero, indicating that data surprises have been on the upside relative to consensus expectations.

Key Quotes

“That remains the case right now, though the index has lost some ground since last autumn.”

“The data we have seen over the Christmas period have generally been encouraging – upward revisions to exports and investment within the national accounts, a lower current account deficit, business surveys generally remaining upbeat, household borrowing remaining broadly unchanged versus the previous month but mixed evidence on retail sales.”

“As long as the real economy data continue to print along these lines, we believe the Bank of England will once again show inflation well above its target (by around 0.4pp at the three-year horizon) in its upcoming February Inflation Report. In turn, that should require around four 25bp rate rises to bring inflation back to target. With the financial markets pricing in less than a single hike this year and less than two hikes in total by end-2019, we think there is room for the short-end to sell off in the coming months.”