The Research Brief
A Weekly Survey of Markets, Policy, & Power
Issue No. 22 · Sunday, the 16th of August, MMXXVI · London
- UK Q2 GDP came in at 0.4% quarter-on-quarter, and the composition matters more than the headline: June's 0.3% monthly gain leaned on World Cup spending and a heatwave, neither of which recurs in Q3. Consensus for the third quarter is too high.
- The Bank held Bank Rate at 3.75% on a 6–3 vote, with three members already wanting a rise — and Treasury modelling shared with the Prime Minister warns 2027 growth could fall to 0.3% if the Strait of Hormuz stays disrupted. Both of those cannot be true for long.
- The FTSE 100 lost roughly 1.4% on the week while the DAX gained: London's miners and a firmer pound against continental software. The divergence has now repeated often enough to count as a pattern.
- US July CPI slowed to 3.4%, payrolls fell 23,000, and retail sales dropped 0.6% — yet Cleveland's Hammack spent the week arguing for "some number" of rate hikes.
The Editor's View
A note from the desk
The Fed Should Hold: A Supply Shock Is Not a Demand Problem
The Research Brief takes the view that the 42% probability now attached to a September Fed hike is too high, and that the committee holds again. The hawkish case rests almost entirely on a supply shock — energy up 14.7% year-on-year, petrol up 24.6%, fuel oil up 39.1%. Take that out and core CPI is running at 2.5% and decelerating. Meanwhile the demand side is visibly cracking: payrolls down 23,000, prior months revised down by a combined 103,000, retail sales down 0.6%, Michigan sentiment at 51.0 from 55.2.
A committee that tightens into that combination is choosing to fight a price it cannot control while employment rolls over. Hammack's objection — that 3.5%–3.75% is not "meaningfully restricting" anything — is coherent, and the jump in one-year inflation expectations to 4.3% is exactly what de-anchoring looks like in its early stages. That is the strongest counterargument and it is not a weak one. It is still three votes.
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