| Ever since Russia invaded Ukraine and began squeezing Europe’s energy supplies, it has felt like a recession is coming down the road for the eurozone and the UK.
For the central banks, even seemingly good news has a flipside of bad news. Energy prices are coming down, which will arithmetically start to temper inflation. But lower energy bills will inspire consumers and businesses to keep spending and borrowing – which could prop up inflation.Economic data that came out on Friday seems to suggest the interest rate handbrake might need another yank.
The various components of the PMI told a story of a eurozone economy where orders are still flowing, the labour market is tight, and the ECB probably still has work to do. But the BoE is now talking about inflation starting to ebb by the end of the year. The two dissenters on the bank’s nine-member monetary policy committee made a pretty compelling case last week for waiting to see the full, lagged impact of the 11 rate increases they’ve already inflicted.
So the banking crisis might end up being more of a poser for the ECB’s financial stability officials than the monetary policy ones. The stability folk are reportedly mulling whether they might have to tighten banks’ liquidity standards or requirements.