19 November 2025: Pill Says Headline UK Inflation Overstates Price Pressures

Independent Bank of England policymaker Swati Dhingra stated yesterday that interest rates should be reduced to their neutral level "fairly soon."

Dhingra was among four members of the nine-person Monetary Policy Committee who voted to lower interest rates from the current 4.0% this month, while a majority opted to maintain the current rate.

In explaining her vote, Dhingra indicated that monetary policy is currently too restrictive and that rates should have already been reduced to address weak economic demand forecasts.

"I think we should be getting to the neutral rate fairly soon, for the reason that we would still expect the current situation to persist for another year and a half," Dhingra said during a presentation to students at the University of Sheffield.

Rather than speculating on the current neutral rate, Dhingra emphasised she would base her decisions on economic data, which, at the end of the day, all her colleagues should be doing.

When asked about her focus in the official inflation figures scheduled for release later this morning, Dhingra told students she would be looking for continued disinflation in the services sector and confirmation that recent food price increases were not spreading across different product categories.

Meanwhile, Bank of England Chief Economist Huw Pill said that UK price pressures are not as intense as headline inflation estimates suggest, but maintained that policymakers should not cut interest rates again just yet. A raft of one-off price impacts will likely be temporary, yet reiterated concerns that economic shocks to households and firms may have changed price and wage-setting behaviour.

“I think underlying inflationary dynamics in the UK are probably not as strong as current spot headline inflation suggests, but that doesn’t mean I believe that we should embrace that story completely,” he said in a “fireside chat” hosted by Natixis Corporate and Investment Banking. He said the current momentum in domestic prices and wages is “not fully compatible with the inflation target,” adding that “there’s still work to do.”

The data set to be released imminently will go some way to confirm the Bank of England Governors' view that inflation has peaked at 4% and will gradually fall over the next twelve to eighteen months.

According to the National Bureau for Economic Research, which has based its findings on a decade of data since the referendum, the UK’s GDP (Gross Domestic Product) had fallen by as much as 8% from where it should be since 2016.

The NBER says that increased uncertainty and reduced demand following the decision to leave hurt the UK economy. It states: “We estimate that investment was reduced by between 12% and 18%, employment by 3% to 4% and productivity by 3% to 4%. These large negative impacts reflect a combination of elevated uncertainty, reduced demand, diverted management time, and increased misallocation of resources from a protracted Brexit process.”

It comes after another report last week, which found that UK business investment is 12 to 18 percent lower than it would have been if Britain had stayed in the EU.

The pound continues to drift lower in baby steps. Yesterday, it fell to a low of 1.3134 and closed at 1.3146. As Rachel Reeves makes the final changes to her budget speech, due to be delivered a week from today, traders and investors who are well aware of the scope of the measures to be published will position themselves for their impact.

The official data “spigot” has not yet been fully opened since the end of the Federal Shutdown. This continues to fuel speculation among market practitioners and rate setters, who are predicting numbers that align with their views of what is happening in the “real” economy.

The Head of the tech behemoth Google gave an interview to the BBC yesterday, praising the impact of AI on economic growth but warning that if tech investment results in a bubble, no sector of the economy would be immune from the fallout, including his own firm.

It is unusual, in the context of previous bubbles, that investors are still pouring money into the sector with their eyes wide open about the possible shocks that could happen a little down the road.

Sundar Pichai told his interviewer that he believes the full effect of AI is some way from being realised, although he feels it will be at least as great as the influence exerted by the internet and the World Wide Web.

He warned that AI users should consider which products best suit their purpose and guard against believing everything “AI tells them”.

US companies shed 2,500 jobs per week on average in the four weeks ended Nov. 1, according to data released Tuesday by ADP Research.

The figures suggest the labour market lost momentum in late October, though the pace of employment losses appeared to slow heading into November.

The ADP snapshot of the labour market has helped bridge the gap left by the delayed official employment data, which were delayed by the longest government shutdown in history. While funding to official statistics agencies has been restored, it’s still unclear when the October economic data will be issued.

Tomorrow, the Bureau of Labor Statistics will issue its September jobs report, which is expected to show total US payrolls rose 55,000 from the prior month. ADP’s monthly jobs report, which was released Nov. 5, showed private employment increased 42,000 after declining in the previous two months.

Federal Reserve Governor Michael Barr took a break from calling for interest rates to be lowered yesterday, warning that weakening the agency’s supervision could lead to “real dangers” accumulating in the banking system, which, over time, might sow the seeds of a crisis.

Supervision relies on a credible ratings framework, forward-looking supervision and strong staff, Barr said. He added that he sees private credit as a potential risk, noting that there are vulnerabilities in the insurance system tied to it.

Meanwhile, Richmond Federal Reserve President Thomas Barkin said he hopes the upcoming data and ongoing interviews will help clarify where the economy is heading, as policymakers still face tension between their inflation and employment goals and are divided about the direction of monetary policy.

In prepared remarks at an event in Virginia and separate comments in a media interview, Barkin said available data showed the economy to be in an "unattractive" balance, with inflation well above the Fed’s 2% target and not obviously heading higher or lower, and the unemployment rate likely to increase but not by much.

With his colleagues divided over whether to cut interest rates to protect the job market or leave them where they are to guard against higher inflation, Barkin said it was easy "to imagine scenarios on both sides of that to suggest a policy response. But it is also easy to imagine not."

The dollar index is gaining limited support from hawkish comments from FOMC members, despite the market still expecting one more rate cut this year. Yesterday, the index tiptoed to a high of 99.66 and closed at 99.59.

Chinese Vice-Premier He Lifeng and German Finance Minister Lars Klingbeil sought common ground after a financial dialogue in Beijing on Monday, with both officials saying the two countries should strengthen ties and support open, rules-based global trade.

Klingbeil’s trip marked the first visit to China by a German minister since the new coalition government took office earlier this year and came at a delicate time for Sino-German relations, with Berlin gripped by supply chain anxieties and political division over its China policy.

German Foreign Minister Johann Wadephul postponed his planned visit to China last month, apparently due to scheduling issues, after accusing Beijing of supporting Russia’s war against Ukraine and engaging in “increasingly aggressive” behaviour in the Straits of Taiwan. But Klingbeil stressed the need for engagement.

“We are seeking dialogue with China to find solutions to pressing problems despite growing international tensions. That is why I am in Beijing for talks,” he said, according to a post on the social platform X by Germany’s finance ministry on Monday.

The two officials issued a joint statement with 27 points of consensus reached by Beijing and Berlin, with both sides also vowing to uphold international and multilateral cooperation, oppose unilateralism and trade protectionism, and support the roles of the Group of 20 and the World Trade Organisation.

“A healthy and stable China-Germany relationship serves the interests of both countries and meets the expectations of China and Europe,” He said at a press conference after the private talks.

The state of French industry remains worrying, as new factory openings no longer compensate for closures. Greater stability in fiscal and regulatory frameworks is necessary in political decision-making.

Reindustrialisation cannot be decreed and cannot rely solely on publicity stunts. This was the outcome of the Choose France summit, which took place in Paris on Monday.

The meeting struggled to disguise the troubling reality facing French industry. Intended to galvanise French investment by projecting the image of a "successful France," the initiative only exposed the widening gap between the government's assertive rhetoric and the country's economic reality.

The European Central Bank has delivered one of its most explicit warnings yet to eurozone banks: tough shocks are coming, and they may look nothing like the crises we’ve seen before. As part of its new supervision roadmap, the ECB says lenders must prepare for “unprecedented” risks, and to make the point, it’s about to put them through a very different kind of stress test.

Instead of handing banks a ready-made crisis scenario, the ECB will flip the process on its head. Supervisors will set a point at which a bank’s capital would be depleted, and then ask the bank itself to work backwards and imagine what kind of event could push it that far.

It’s an unusually blunt message from Frankfurt, and it comes as the ECB tries to push the sector to think more creatively and realistically about the world it operates in.

This may be a veiled warning about the risks of a bubble in AI investment, as alluded to yesterday by Google CEO Sundar Pichai.

The Euro lost ground yesterday as investors were drawn to the dollar amid speculation of a slightly more hawkish stance from FOMC members. It fell to a low of 1.1571 and closed at 1.1580.

Have a great day!