William Ellis

With inflation easing faster and growth weaker, holding rates too high for too long risks unnecessary damage. The Bank of England should halt active gilt sales (similar to FED, ECB), and cut rates further and faster to stop inflation falling below target and support growth.

The Bank has also downgraded growth. It expects budget measures to lift growth near term (+0.2% at peak in 2027/28), but that’s offset by labour market weakness and BoE agents reporting subdued activity. Chart: pre- vs post-budget 👇

Inflation is now projected to return to 2% target about a year earlier. The Bank says budget measures “directly reduce CPI inflation by 0.5pp at its peak in 2026 Q2”. Chart: pre- vs post-budget 👇

Markets weren’t surprised the Bank of England held rates today. But the backdrop has shifted: the Bank has cut its inflation and growth forecasts, strengthening the case for earlier rate cuts to support the economy while keeping inflation on target. #BoE #UKeconomy 🧵

The Bank of England must pull its weight, and be more open about the impact of its active QT on yields.

www.ft.com/content/4137...

③ Savings vs spending: the saving ratio is still ~10–11%. That means weaker consumption, easing demand and inflation (consumption is ~60% of GDP). The Bank’s forecast assumes savings fall; if households stay cautious, there’s more scope to cut. Next data: 22 Dec.

② Expectations: 5‑year household inflation expectations are still 3.7% — only 0.1pp below the record 3.8% (Aug; highest since 2009). That matters for wage bargaining. Food/other ‘salient’ prices have eased, which should help. Next update likely March (after Feb decision).

① Inflation & jobs: CPI was 3.2% in Nov — below both BoE and OBR paths. Unemployment is 5.1% (3m to Oct), above both forecasts. If the next few prints confirm this shift, it argues for a quicker easing cycle. Next data on 21st Jan for CPI, and 20th Jan for unemployment.

Three things the MPC will be watching over the next few months:
① whether the cooling in inflation and the labour market persists;
② whether lower inflation feeds into household inflation expectations;
③ whether households keep saving at unusually high rates.

The Bank of England cut rates by 25bp today. A welcome move as inflation pressures ease and the labour market cools. The next question is the pace: further cuts in 2026 look likely, but it will hinge on incoming data. Thread below 🧵

The cut to interest rates is welcome news. We expect inflation and labour markets will continue to cool, and further cuts to interest rates will be needed to protect economic growth and ensure inflation hits the 2 per cent target, says @willellisecon.bsky.social.

This "visible" deflation helps allay the MPC's fears of inflation persistence.

Combined with yesterday’s data showing a softening labour market, the economy is cooling faster than the Bank predicted.

The case for a cut to 3.75% tomorrow is strong. #CPI #UKEconomy

Good news - CPI inflation drops to 3.2% in Nov. We’ve hit the level the Bank of England didn’t expect until March 2026, putting us four months ahead of their schedule.

Prices are actually falling month-on-month (-0.2%), led by visible items: 🍔 Food -0.2% 🍺 Alcohol -0.4%.

Our argument is simple: talk is cheap unless backed by consistent action. Sticking to the framework, avoiding surprises, stopping active QT sales and rebuilding a stable domestic buyer base can help shift the UK from a high cost to a lower cost equilibrium – and create more room for good policy.

The encouraging bit is that this is reversible. Since the Chancellor’s Labour conference speech and the Autumn Budget, the premium has edged down by around 20 basis points as markets gain confidence that the fiscal plans will actually be delivered.

Chart looks the difference between UK bond yields and US/Euro Area, showing the cumulative change in this difference since the general election. This difference has been steadily increasing since the election, but there are signs of reversal since the labour part conference in September.

📊 You can see this in the chart: UK 10 year yields drifting above the US and euro area after the election, even as market implied inflation and policy rate expectations stayed flat or fell.

Investors have been demanding a higher term premium to hold gilts in the UK – compensation for uncertainty about future policy, not for runaway debt. The legacy of the mini Budget, frequent rule changes and rapid political turnover all feed into that wariness.

Debt is around 101% of GDP – well below the G7 average of 124% and lower than the US, Italy or Japan. Borrowing is set to halve over this parliament, with the UK on track for the 3rd lowest deficit in the G7 by 2028. That’s not a fiscal basket case.

Rule of the market: How to lower UK borrowing costs | IPPR To lower borrowing costs, the government must continue to rebuild credibility, carefully manage market sentiment and pursue growth-enhancing policies with

Why are UK borrowing costs so high when our debt and deficit numbers look better than others? In a @ippr.org paper, @carsjung.bsky.social and I argue the problem is less “fundamentals” and more a bad equilibrium of market vibes: www.ippr.org/articles/rul.... Short thread. 🧵

Nugget 2 — Productivity: After an upgrade in the last report, the Bank changed its mind and downgraded the path: growth in output per worker is ~0.2pp below the OBR on average and ~0.1pp below its Aug forecast. We'll be keeping an eye on how that compares to the OBR at budget.

Nugget 1 — APF/QT: There’s been debate around the pace of Quantitative Tightening (QT), and how much this is costing the taxpayer. At @ippr.org we’ve long called for more transparency and it looks like that’s coming – with more detail and a ‘new measure’ next week in the APF report.

The Bank of England held rates today. A close call—we think the Bank could have gone further and cut. Inflation should fall, the labour market is cooling, growth is sluggish, and the Budget is likely to remove demand. Some less-noticed nuggets👇#BoE #UKeconomy

Great to see Rachel Reeves strike a clear note on fiscal sustainability & reducing debt at #LabourConference2025. Sending the right signal ahead of the Budget is crucial — and markets look to have responded positively.

Andrew Bailey under political attack on all fronts Legacy of Bank of England’s quantitative easing policy is coming back to bite the Governor

Support is growing for adressing the £22 billion annual taxpayer losses at the Bank of England.

To do so, both BoE and HMT would need to act. On Thursday the Bank should stop active bond sales. And HMT should claw back interest rate losses via a targeted levy.

www.telegraph.co.uk/gift/5259508...

Navigating in the fog: Why the OBR should hold its nerve on the productivity forecast | IPPR Productivity growth is central to the UK economy. Higher productivity allows the UK to produce more output without increasing its inputs (eg an employee pr

I go into these points in more detail in my piece — do give it a read!

3️⃣ The FT rightly note that government policy could raise productivity, but impacts may take time to materialise. Even a modest +0.1ppt medium-term boost would be material - so the OBR should wait until policy details are clearer before baking them in.

2️⃣ The BoE recently upgraded its near-to-medium term productivity forecast. Recent LFS data has actually been in line with the OBR’s view. A downgrade larger than 0.1ppt would make the OBR more pessimistic than the BoE — an unlikely stance.

1️⃣ Even the “official” LFS data is highly uncertain. Between 2002 Q2–2016 Q3, productivity growth was typically revised by around ±0.6ppts three years after the first estimate: ons.gov.uk/employmentan...

The FT illustrate uncertainty using recent upswings in admin data (see my recreation below) — adding even more fog for the OBR to navigate. But this isn’t the only source of uncertainty. There are several reasons why the OBR should remain cautious…

The ‘educated guess’ set to decide Keir Starmer’s fiscal fate OBR judgment on productivity comes as Labour backbenchers fret about watchdog’s influence

Very pleased to see my analysis on UK productivity growth picked up by the FT this morning. Their piece highlights the uncertainty around the OBR’s productivity forecast — and how stark the fiscal implications could be at the Budget. A few of my reflections below 👇