TD Securities strategists anticipate that the United Kingdom's labour market data for February will show signs of stabilisation, with the unemployment rate expected to tick down to 5.1% (market consensus: 5.2%; prior: 5.2%) and job gains projected at 50,000 (market consensus: 35,000; prior: 84,000) at the start of the year [1]. Wage growth is forecast to slow across all key measures, with Average Weekly Earnings (AWE), AWE excluding bonuses, and private earnings growth expected at 3.6% 3m/y, 3.5% 3m/y, and 3.2% 3m/y, respectively, all in line with consensus estimates [1]. These figures are based on pre-conflict data, preceding the Iran conflict, and are seen as allowing the Bank of England's Monetary Policy Committee (MPC) to focus more on inflation expectations rather than current pay dynamics [1].
In Canada, TD Securities expects the March Consumer Price Index (CPI) to accelerate, driven by a sharp increase in energy prices, with headline CPI forecast at 2.5% year-on-year and 1.1% month-on-month (market consensus: 2.6% y/y, 1.1% m/m) [2]. Gasoline and other energy products are anticipated to contribute approximately 0.7 percentage points to the headline monthly print, while a sharp deceleration in food prices will offset some of the energy impact [2]. Core inflation measures, including CPI-trim and CPI-median, are expected to rise 0.2% month-on-month and hold at 2.3% year-on-year, marking the largest monthly increase since October, with three-month core inflation rates jumping from 1.0% to 1.7% [2]. Despite these developments, TD Securities does not expect the Bank of Canada to alter its messaging in April, as it has pledged to look through the near-term impact of higher oil prices [2].
The Q1 Business Outlook Survey and Survey of Consumer Expectations, set to be published ahead of the April Bank of Canada meeting, will provide insights into business and consumer sentiment. However, TD Securities notes that these surveys will be more backward-looking than usual, as most interviews occurred before the US strikes on Iran and the subsequent rise in global energy prices [2]. The surveys may show further normalization of firm-level and consumer inflation expectations, but TD Securities does not anticipate any impact on the Bank of Canada's April deliberations. Additionally, a mildly dovish tone is expected across other survey components, as the unwind of recent labour market gains and the pullback in Q4 GDP reduce pressure on capacity indicators [2].
Both articles highlight the influence of geopolitical tensions, specifically the Iran conflict, on central bank focus and market expectations. In the UK, pre-conflict labour market stabilisation allows the MPC to prioritize inflation expectations, while in Canada, the energy-driven CPI spike is not expected to prompt a change in the Bank of Canada's cautious stance, given its commitment to look through short-term oil price impacts [1][2].
CONCLUSION
UK labour market stabilisation and slowing wage growth are expected to shift the MPC's focus toward inflation expectations, especially in light of recent geopolitical tensions. In Canada, a surge in headline CPI driven by energy prices is not anticipated to alter the Bank of Canada's messaging, as core inflation remains contained and surveys are backward-looking. Overall, central banks are maintaining a cautious approach, prioritizing inflation expectations amid evolving global risks.