UK PMI data point to GDP growth of 0.3% q/q in Q1, high business optimism in the outlook, and only a modest loss of momentum in the MPC's underlying services CPI (chart). I still think sub-2% headline inflation from April enables a June rate cut, but it's far from a done deal.

January's UK CPI figures keep alive chances that the MPC will cut Bank Rate in Q2.

I calculate that three-month-on-three-month annualised growth in the Committee's preferred underlying services CPI slowed to 3.7%—its lowest rate since February 2022—from 4.7% in December:

The number of Brits who are economically inactive due to long-term sickness rose by a further 189K over the course of 2023, depleting the workforce by 0.5%. The economy's prospects would improve greatly if healthcare waiting lists can be stabilised or reduced.

I doubt the MPC will place much weight on the 0.1pp rise in the headline rate of CPI inflation to 4.0% in December, which still undershot its 4.6% forecast in Nov's MPR. Note too that its new measure of underlying services CPI inflation fell to 6.4% in Dec, from 6.5% in Nov:

UK GDP is still oscillating around a flat trend. Nov. data imply it's a coin toss if it fell by 0.1% for a second quarter in Q4 or not. If so, however, it would be overblown to label this a recession, as employment is still rising and business & consumer confidence is recovering.

Rishi Sunak currently looks unlikely to 'make sure our national debt is falling” this year, which was one of the five targets he announced in January.

ONS data today show the debt-to-GDP ratio has risen to 97.5% in Nov, from 95.9% in Dec 2022 (though these data do get revised):

The MPC can't dismiss Nov's drop in inflation as noise. Its new measure of underlying services inflation, which excludes non-private rents, accomm. prices and airfares as they are “not typically reliable indicators of trends in inflationary persistence”, fell to 6.5%, from 6.9%:

UK Bank Rate expectations have risen in response to the MPC's minutes, which downplayed the downside data surprises from inflation & wages and reiterated that policy is likely to be 'restrictive for an extended period'. But expectations are still lower than at start of the week.

Will the MPC echo the more dovish Fed? Recent -ve surprises from inflation, wages & GDP provide an opportunity. But the ↑NLW & Budget present upside risks to inflation in '24. These risks imply 1st rate cut no earlier than May, too distant for MPC to signal an easing bias today.

The course remains set for the MPC to reduce Bank Rate next year. The OBR judges that the Autumn Statement measures will boost aggregate demand relative to supply by just 0.1% at most. The fiscal consolidation planned for 2024/25 remains very large, despite today's tax tweaks:

The UK's largest low-wage employers (i.e. the big supermarkets & Amazon) currently pay £11.00-to- £11.40ph. The 2024 inflation outlook hinges on whether these employers maintain a big premium over the NLW, or let it shrink. I reckon the latter, given ↑u/e rate, but we'll see...