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18 September 2026, 08:39 UTC Chief Investment Office GWM Investment Research

Paul Donovan's daily audio: Policy peculiarity, and a productivity 'miracle' Audio Paul Donovan, Chief Economist, UBS GWM, UBS AG London Branch

The Bank of Japan raised rates, as expected. The decision was not unanimous, causing a modest market reaction. The yen has weakened—yelling “house” like a grandmother in a bingo parlor does not offset fundamental market pricing. August inflation was a little lower than expected (helped by government influenced prices). The BoJ wants neutral interest rates, and another rate increase may follow.

The Bank of England left rates unchanged, but oil fears are clearly getting to policymakers and may induce a future hike. Quantitative tightening did change—the bank will now keep a large chunk of its bond holdings until maturity, altering supply dynamics in bond markets.

UK August retail sales were stronger than expected—hot weather encouraged clothing and air conditioning sales. The football World Cup encouraged alcohol sales (national teams’ performances were best viewed after consuming alcohol). The UK unleashed a productivity “miracle” (dramatically revising past productivity higher, using new labor data). For any future level of working population growth, output could be higher and inflation lower than would previously have been expected.

ECB inflation expectations are due, but not worth bothering with. Eurozone consumers lack the power to turn expectations into action. ECB President Lagarde speaks again; her remarks earlier this week did not prove market- moving.

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