At Any Rate European Rates: Euro and UK inflation markets summer update
Aug 20, 2025
Francis Diamond and Frida Infante dive into the evolving landscape of inflation in the Eurozone and UK. They discuss a notable decline in core inflation trends and predict future inflation expectations. The conversation highlights the harmonized index of consumer prices and recent developments affecting the UK’s inflation outlook. Additionally, they analyze UK inflation break-evens, emphasizing their potential value amid uncertainties. Finally, a transatlantic perspective contrasts US and European inflation dynamics, urging attention to fixed income trends.
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Euro Inflation To Gradually Decline
- Euro area headline and core inflation are set to grind lower through late 2025 and into 2026.
- JPMorgan forecasts HICP headline at 1.8% in Q4 2025 and 1.7% by end-2026 with core near 1.8%.
Market Pricing Matches Forecasted Euro Disinflation
- Market forwards broadly price the expected euro-area disinflation over the next year.
- Five-year, five-year HICP swaps look fairly priced and likely to remain in a narrow range near current levels.
Position Conservatively In Euro Intermediate Break-Evens
- Expect limited upside for intermediate euro HICP break-evens while ECB remains on hold and inflation grinds lower.
- Consider modest positioning for slight downside in five-year, five-year HICP swaps around current levels.