Investment Institute
Viewpoint Chief Economist

Towards a Busy Summer

  • 19 June 2023 (5 min read)

  • The Bank of England is under fierce criticism, but a lot is beyond its control.
  • We now see the peak in the Fed tightening in July, while the “natural slope” now is probably that the ECB hikes one last time in September.

After the Fed and the ECB, focus is now turning to the Bank of England, which is widely expected to hike by another 25bps on Thursday. The British central bank is facing much criticism. It has appeared as more reluctant to tighten monetary conditions than its American and European counterparts, going as far as to warn the market against pricing too many rate hikes last November, only to be now compelled to possibly deliver even more than what had been expected at the time, amid stubborn wage pressure. We think the BoE is however having to deal with the product of political decisions and structural forces on which it has little control. In the bizarre configuration the UK is finding itself in – an overheating labour market which fails to create jobs – the shortcomings of the British healthcare system (nearly half a million people have left the workforce because of long-term sickness since 2019) and the limitations of the post-Brexit immigration system contribute a lot more than any traditional excess demand.

We review the Fed’s decision last week: we feel the FOMC may have dangled the possibility to hike twice more to avoid a market-led softening in financial conditions which could have followed the pause. We have moved our baseline to one more hike in July, but we still think this will bring enough restriction as we expect the data to tell us within the next two months that the economy is indeed landing. For her part, Christine Lagarde absolutely refused to be dragged into a conversation about the post-July trajectory. This probably reflects the absence of consensus at the Council, which makes sense given the difficulty to form a precise diagnosis at the moment. One last hike in September is probably the “natural slope” now though, even if we think we need to take the latest hawkish forecasts with a pinch of salt. The ECB is focused on the labour market, and there may not be enough evidence it is about to land by the time the Council meets in September. This however makes us even more concerned that the ECB will end up “doing too much”.

Related Articles

Viewpoint Chief Economist

One Week at a Time

Viewpoint Chief Economist

Taking the Plunge

Viewpoint Chief Economist

The (welcome) Return of Boring


    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
    It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.
    All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.
    Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.
    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 22 Bishopsgate London EC2N 4BQ
    In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

    Are you a Professional Investor ?

    This website is available in English only and directed at professional, institutional or qualified investors. It is not suitable for retail investors. As such, some of the funds, products and services described on this website are not available for retail investors under the MiFID II (Directive 2014/65/UE). By pressing accept you confirm that you are a professional investor and agree to AXA Investment Managers' Legal Information and Terms of Use.