FRANCE: Rpts-Lecornu Could Be Reappointed; Wider Deficit Targets To Pass Budget

• We will also be focusing on the take up of the STR and ILTR this week following the redemption of the formerly 10-year 2.00% Sep-25 gilt that has now matured.
• The BOE held GBP26.2bln of this gilt in nominal terms and will reduce the size of the APF holdings by GBP28.3bln in initial purchase terms.
• This follows a couple of weeks in which we have seen STR usage pick up by GBP9.6bln and ILTR usage pick up by GBP1.6bln.
• Together this means that demand-led balances have increased to GBP108.1bln (from the previous cycle peak of GBP102.2bln around 2 months ago.
• The market reaction will in our view will factor into the MPC’s decision on the size of the QT programme in the Oct’25 to Sep’26 period (which will be decided at the upcoming September MPC meeting).
• We favour keeping the pace of active sales broadly inline with the pace seen this year which would see around a GBP60-65bln target reduction in the size of the APF programme (including passive sales).
• We wrote more on this in July in BOE September APF Decision: What you need to know (see here).

We have published and e-mailed to clients the MNI Preview for tomorrow's preliminary benchmark revision to payrolls data. See the full note here: https://media.marketnews.com/US_Prelim_Benchmark2025_Preview_f1d718139b.pdf

• Tuesday’s preliminary annual payrolls benchmark revision is widely expected to imply large downward revisions to nonfarm payrolls growth through the twelve months to March 2025.
• We’ve seen estimates for a downward revision of at least 500k (using mid-point estimates when analysts quote a range) with a central guess of around -750k.
• History suggests the actual benchmark revision due with the Jan 2026 payrolls report will be smaller than what’s reported this week, but downward revisions could still be significant.
• Beware extrapolating these downward revisions beyond March 2025 after significant changes in the labor force since then. 
• Also recall that last year saw issues in the publication of this preliminary estimate, with a late release. 

Headline Inflation: Analysts pencil in small (one tenth) upward revisions to 2025 and 2026 headline inflation projections to 2.1% and 1.7% respectively. 2027 headline inflation is still expected to be on target at 2.0%.

• Higher-than-expected spot energy and food prices are expected to drive the upward revision to 2025 and 2026 headline inflation, albeit offset somewhat by a stronger Euro.
• Analysts are not expecting many revisions to culminate from the EU-US trade deal, while some highlight that the German government's U-turn on a proposed household electricity tax cut will push 2025 and 2026 projections higher.
• While 2025 headline inflation projections are concentrated at 2.0% and 2.1%, there is a larger range for 2026 of 1.5% to 1.9%. This appears to be due to differing expectations around the ECB’s technical assumption cut-off date – which would imply different estimates for oil and gas contributions to inflation revisions.

Core Inflation: Analysts on net do not expect any core inflation forecast revisions through 2027 (2025: 2.4%, 2026: 1.9%, 2027: 1.9%).

• Only one analyst expects a downward revision to the 2025 projection to 2.3%
• For 2026 and 2027, expectations range between 1.8-2.0%.