Soft Landing Prospects for the US and European Economies

by David du Plessis and Trent Wiseman | July 2, 2024

Interest rate cuts following a period of high interest rates can significantly impact an economy. These cuts are typically implemented to stimulate economic growth by making borrowing cheaper, encouraging investment and consumption. However, they also signal concerns about economic health, such as potential deflation or recession risks. Central banks, like the Swiss National Bank (SNB) and the Bank of England (BoE), adjust their monetary policies to balance these concerns, aiming to ensure price stability and support economic recovery. The recent decisions by these banks reflect their proactive strategies in navigating current economic challenges.

Swiss National Bank’s Rate Cut

The SNB’s recent rate cut on 20 June 2024 was unexpected, but its focus on price stability justified the move. The core CPI in Switzerland is at 1.2%, the lowest among G10 countries, signalling a deflationary threat. The inflation impulse, a leading indicator for core CPI, is already negative, reflecting weak inflation expectations. The SNB’s forecasts for 2025 and 2026 show inflation at 1.1% and 1.0%, respectively, well below target. This indicates monetary conditions may be too tight and has necessitated the recent policy adjustment.

Bank of England’s Potential Shift

The BoE may soon adopt a dovish stance, with rate cuts likely sooner than anticipated despite persistent core inflation. The unexpected dovish pivot underscores the importance of closely monitoring UK inflation. Energy inflation from 2022 has had lagged effects on 2023’s headline CPI, with significant base effects contributing to the gap between core and headline CPI as shown in figure 1.

Figure 1

This gap is currently the widest since the 1990s, suggesting potential for reduced disinflationary pressure as base effects wane. UK core inflation remains sticky, with current wage growth at 5.9% and housing services inflation at 6.9%. These factors, combined with a high proportion of services in the consumer basket, require evidence of a slowdown in services prices before rate cuts can be justified. The seasonally adjusted 3-month rate of change for core inflation is at 4.9%, compared to a year-over-year rate of 3.5%, indicating ongoing inflationary pressures.

Economic Surprises from the US

In June, US economic data presented a mixed picture with some notable surprises. On the positive side, May’s non-farm payroll growth was robust, inflation rates were lower than expected, and the June Purchasing Managers’ Index (PMI) data showed general improvement. These indicators suggest some areas of strength in the economy.

However, there were also widespread negative surprises. Consumer confidence and actual consumption figures fell short of expectations, the housing market showed significant weakness, and inflation expectations increased even as actual inflation slowed. This combination of factors paints a more concerning economic outlook.

Overall, the macroeconomic data has incrementally shifted towards a recessionary trend. While non-farm payroll growth remains a strong point, the conflicting signals from household job reports align with other indicators of declining labour demand, suggesting potential challenges ahead for the labour market.


The SNB’s rate cut highlights its proactive approach to preventing deflation, supported by low core CPI and negative inflation impulses. In the UK, the BoE’s potential shift towards rate cuts underscores the importance of monitoring inflation trends, particularly the gap between core and headline CPI and the ongoing wage growth. The mixed economic data from June complicates the outlook for a soft landing in the US. While the lower-than-expected inflation rates offer some reassurance, robust non-farm payroll growth is troubling. The decline in consumer confidence and consumption, coupled with significant weaknesses in the housing market, signal underlying vulnerabilities. Additionally, the rise in inflation expectations despite slowing inflation further clouds the economic horizon. Overall, the prospects for a soft landing in both the US and European economies hinge on careful monetary policy adjustments and vigilant monitoring of key economic indicators.

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