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Daily Economic Update
23.03.2025UK: The BoE keeps the policy rate unchanged, warning of increased uncertainty. The Bank of England (BoE), as widely expected, kept the Bank Rate unchanged at 4.5%, flagging increased uncertainty, mainly related to developments around tariffs. The 8-to-1 vote was more hawkish than market expectations, with only one committee member opting to cut (by 25 bps) compared with two expected by the street. In the previous BoE meeting back in February, two members dissented, opting to cut by 50bps. BoE Governor Andrew Bailey mentioned that “there’s a lot of economic uncertainty at the moment and we still think that interest rates are on a gradually declining path”. The bank re-iterated its stance of a “gradual and careful approach” to further monetary loosening. The BoE is not in an easy situation, facing a relatively weak economic outlook in addition to a higher-than-expected resurgence in inflation, which for example, increased to 3% y/y in February from 1.7% in September, and is projected by the BoE to rise further to more than 3.7% y/y in Q3. Moreover, wage growth (more on that below) remains elevated. Looking ahead, the market is expecting two 25-bps rate cuts before year-end, with a broadly evenly split probability for a cut in the BoE’s next meeting in May.
UK: Employment gains pick up slightly and wage growth remains elevated. UK payroll gains (based on employment tax records) rose to 21K in February from a downwardly-revised increase of 9K in January, showing two consecutive months of increase for the first time since early 2024. The unemployment rate was unchanged at 4.4% in the November-January period, and job vacancies fell slightly to 816K in the December-February period to stay near their lowest since March-May 2021. Meanwhile, wage indicators were mixed as regular pay growth (excluding bonuses) was flat at 5.9% y/y, but total pay growth (including bonuses) fell to a still-elevated 5.8% in the November-January period from 6.1% in the preceding three months. Increasing payrolls, a steady unemployment rate and still-elevated wage growth indicate that the labor market may be stabilizing after seeing weakness in late 2024 amid concerns related to the hike in employer insurance contribution. However, the touted upcoming cuts in government spending and heightened global trade uncertainty may result in fresh headwinds ahead.
Japan: Inflation eases from its 2-Year high in February. Consumer price inflation eased in February to 3.7% y/y from its two-year high of 4.0% in January. Core inflation (excl. fresh food) softened to 3.0%, while the narrower gauge, which excludes fresh food and energy ticked up to 2.6%. Fresh food price inflation remained elevated despite slowing to 18.8% (22% in January), while energy price growth eased from January’s 5-month high to 6.9% in February, likely due to the resumption of energy subsides. Meanwhile, pay increases offered by Japanese firms so far in 2025 "Shunto" spring wage negotiations have averaged 5.4%, according to a second tally, which covers 1,388 labor unions, by the Japanese Trade Union Confederation (Rengo), up from the 5.1% increase seen in 2024 and the highest in in 34 years. Persistent inflationary pressures and strong wage increases are likely to keep alive the prospect of the Bank of Japan tightening its monetary stance further during the summer, with the market expecting the short-term interest rate to reach 0.75% in Q3 2025, according to a recent Reuters poll.
UAE: Dubai’s inflation steady in February. Inflation in Dubai was stable at 3.2% y/y in February. Housing, water, electricity, and gas — the largest component of the consumption basket — saw a 7.4% increase, growing at a faster rate than 7.2% in January. Moreover, the fall in transportation prices softened to -0.9% y/y, in line with the movement in fuel prices during the month. On the other hand, food prices continued to decline for the second straight month at -0.2% in February, significantly lower than the yearly increases seen in 2024. We expect inflation to soften over 2025 to around 2.7% in Dubai, down from 3.3% seen in 2024, given the subdued outlook for oil prices and base effects in the housing segment.