Europe macro tracker Feeling bad but hanging on

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Europe macro tracker Feeling bad but hanging on

13 May 2026

Europe macro tracker EconomicsEurope

Feeling bad but hanging on

◆ We now expect a ‘bad’ scenario for eurozone and UK inflation Chris Hare

and rates, but we think hikes this year can be reversed next year Senior Economist, Eurozone, UK and Ireland HSBC Bank plc

chris.hare@hsbc.com

◆ Industry and retail indicators for March point to early resilience, +44 20 7991 2995

but the softening jobs market should limit inflation persistence

◆ UK PM Keir Starmer seems on the brink of losing power, but the

nature and timing of any leadership challenge remains unclear

Feeling bad, acting resilient so far (Charts 1-6)

As we outlined in A ‘bad’ baseline, 12 May, we have this week shifted our base case to

our previous ‘bad’ case for eurozone inflation and policy rates. Given higher energy prices

stemming from the ongoing closure of the Strait of Hormuz, we now see three ECB rate

rises this year. But in contrast to market pricing, we expect those hikes to be fully

reversed next year. That’s partly because our forecasts see the Strait reopening this

summer. Also, we are fairly sanguine about inflationary pressure stemming from the

labour market – an uptick in the French jobless rate in Q1, albeit partly driven by higher

participation rates, chimes with that view.

On a more positive note, the ‘hard’ data so far point to a degree of resilience. In March,

eurozone industrial output rose 0.2% m-o-m, while German factory orders were up 5% m-

o-m. Admittedly, frontloading ahead of prospective input cost rises might have played a

role, while consumer goods production dropped on the month. But regarding the latter,

the March retail sales data showed an encouraging increase in non-fuel sales.

UK government hanging on (Chart 7-12)