UK FISCAL: OBR New GDP Forecasts

• Secured Overnight Financing Rate (SOFR): 4.34% (+0.01), volume: $2.400T
• Broad General Collateral Rate (BGCR): 4.32% (+0.01), volume: $922B
• Tri-Party General Collateral Rate (TCR): 4.32% (+0.01), volume: $906B
• (rate, volume levels reflect prior session)

Eurozone services prices fell 0.14% M/M, a touch below January 2024’s -0.09% reading, but still above the 1997-2024 average of -0.33%. Excluding the volatile package holidays and airfares subcomponents, we estimate services inflation at 3.88% Y/Y (vs 3.76% prior). As such, services inflation pressures remain elevated, and will be a key focus of the February flash inflation round which begins on Thursday. Last week, ECB Executive Board member Schnabel said she expects services inflation to start decelerating from February. 

• Several services components tend to see start-of-year price increases in January (the so-called January effect). Looking in detail at these items, it was a bit of a mixed bag:
  • Insurance prices, which have been highlighted as important to watch by ECB officials in recent weeks, rose 2.15% M/M, below last year’s 4.11%. This helped annual insurance inflation ease to 8.04% Y/Y (vs 10.12% prior).
  • Education inflation also eased a touch to 3.97% Y/Y (vs 4.09% prior).
  • However, health services inflation accelerated to 3.41% Y/Y (vs 3.18% prior), particularly driven by hospital services. Postal services also accelerated to 6.84% Y/Y (vs 4.53% prior), though this component has only a small weight in the basket overall.
• Elsewhere, restaurant and hotel inflation (which generally sees a negative monthly reading in January) decelerated to 4.17% Y/Y (vs 4.56% prior), driven largely by catering services.
• Recreation and culture inflation accelerated to 2.80% Y/Y (vs 2.47% prior), but this was solely due to the volatile package holidays component (8.77% Y/Y vs 7.80% prior).
• Finally, transport services inflation decelerated to 3.96% Y/Y (vs 4.25% prior), with prices falling 5.07% on a monthly basis. This was largely driven by the volatile airfares component (4.86% Y/Y vs 7.65% prior).
• On a seasonally adjusted basis using ECB data, Eurozone services inflation rose 0.30% M/M in January, a 7bp downward revision from the flash release. Services inflation momentum was 2.51% 3m/3m, slightly above the 2.45% flash release but still below December’s 2.71%.

• Dr Swati Dhingra has seen her term as an external MPC member extended by the standard 3 years to 8 August 2028. This was generally expected (most external members do renew their terms) but it's never certain until the confirmation. Her first term had been due to end in August this year. External MPC members can serve two 3-year terms.
• Given that she is one of (if not) the most dovish MPC members, it reduces the tail risk that she would be replaced by a more hawkish member and shift the balance of the MPC through H2-25.