+965 2224 8361
Daily Economic Update
21.09.2025UK: BoE maintains policy rates at 4% but scales back its gilt sale program. The Bank of England (BoE), as widely expected, kept the bank rate unchanged at 4% in a 7-2 vote last Thursday, with two dissenting members opting for a 25-bps cut. The MPC reiterated its previous stance of “a gradual and careful approach to the further withdrawal of monetary policy restraint” as remaining appropriate. Its statement highlighted continued disinflation progress, moderating but still-elevated pay growth and a gradual loosening in the labor market. The committee also reduced the bank’s quantitative tightening (QT) or annual gilt sale program (including active sales as well as no reinvestment of maturing bonds) to £70bn for the October 2025-September 2026 period from the current £100bn per year, with reductions mostly concentrated in long-dated government bonds. Noting an improvement in economic activities, the bank upgraded its outlook for GDP growth in Q3 to 0.4% q/q versus around 0.3% in its August’s projections, while it continued to expect a pickup in annual CPI inflation to a peak of 4% by September. Governor Andrew Bailey acknowledged “risks on both sides” existed but also maintained that “there will be some further reductions” while emphasizing that “the timing and scale of those is more uncertain now.” Futures markets currently foresee no further policy rate cuts in 2025. Meanwhile, indicating a worsened budget deficit, government borrowing in August came in much higher than expected at £18bn (+£3.5bn y/y), taking ytd borrowing in the current fiscal year (April to March) to £84bn (+£16bn y/y), significantly above the official forecast of £72bn for the period. This should exert greater pressure on the Chancellor to further consolidate public finances as she is expected to announce new revenue measures and trim some spending in the upcoming budget on November 26. Further deterioration in the fiscal situation and anticipation of higher government bond issuances pushed the pound lower while gilt yields rose on Friday (see the summary table below). On a positive note, helped by warmer weather conditions, retail sales volumes in August increased by a more-than-expected 0.5% m/m (0.7% y/y), matching July’s growth, extending m/m gains for the third straight month and validating the BoE’s upgraded growth outlook in Q3.
Japan: BoJ keeps rates unchanged but announces plans to start trimming its massive ETF holdings. In line with expectations, the Bank of Japan (BoJ) on Friday kept its policy rate steady at 0.5% for the fifth consecutive time. However, unlike previous meetings, the decision was not unanimous, with two board members calling for a 0.25% rate hike. The 7 to 2 vote highlights increasing pressure for the BoJ to raise rates in its upcoming meetings. In his press conference, Governor Ueda did not rule out a rate hike in October but emphasized that the rate path will depend on future economic data and the effect of tariff policies on the Japanese economy. The BoJ also announced plans to start trimming its ¥75 trillion ($508 billion) ETF holdings, albeit at a relatively modest pace of ¥620 billion per year and likely starting early next year. The Nikkei 225, after hitting a record-high on Thursday, was pressured by that news and ended Friday 0.6% lower. Meanwhile, CPI inflation decreased for the fourth consecutive month in August, reaching a ten-month low of 2.7% y/y with core inflation (excluding fresh food) also softening to 2.7%, which was in line with expectations. A core-core measure (excluding fresh food and energy) that is closely monitored by the BoJ inched down to a still elevated 3.3% y/y, from 3.4% in July.
US: Weekly jobless claims fall more than expected, reversing the prior week’s surge. Initial weekly jobless claims dropped to a more normalized level of 231K (w/e Sep 13), reversing their prior week’s outsized surge to a near four-year high of 264K, helping soothe worries about a sudden rise in unemployment. A large jump in jobless claims in w/e Sep 6 in Texas mainly contributed to the overall increase in weekly claims, which was later attributed to attempted fraud along with volatility in unemployment claims around public holidays (Labor Day holiday fell in the w/e Sep 6). Continuing claims (w/e Sep 6) also moderated to 1.92mn from 1.93mn the previous week but remained overall elevated. The latest labor market data underscores a gradual and steady loosening in employment conditions, as despite a sharp deceleration in monthly job growth, economic activity indicators remain resilient.
Egypt: 5-year credit default swaps fall to their lowest level in three years. The cost of insuring Egypt's five-year sovereign debt fell by 34% YTD at the end of last week, reaching 378 basis points, following the US Federal Reserve's announcement of an interest rate cut. Commensurate with this, yields on Egypt’s Eurobonds have decreased as well. The decline in insurance costs reflects an improved outlook for risks related to the Egyptian economy in the short term, especially considering the ongoing economic reform program and the support provided by foreign portfolio investments. Foreign net purchases of Egypt’s domestic sovereign debt reached approximately $500 million last week, larger than the inflows for the full month of August.