# Tokenism at the ECB, resilience in the UK

_UK consumers are defying the bears – again._

Neil Woodford · 12 June 2026 · 9 min read

![President of European Central Bank (ECB) Christine Lagarde. The ECB has recently increased interest rates by 0.25% in response to inflation pressures stemming from the ongoing conflict in the Middle East. Lagarde has defended this decision as "robust across a range of scenarios," with the bank maintaining a meeting-by-meeting, data-dependent approach to further monetary adjustments.](https://cdn.sanity.io/images/v3acfbvo/production/9c67160be1f16f8b81fe3f22d08778fd1097e476-6240x4160.jpg?w=1600&fit=max&auto=format)

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For someone who tries consistently to see the glass as half full rather than half empty, this has been a difficult week. The horrors unfolding on Britain's streets are as depressing as I can remember and the political paralysis gripping the UK government compounds the feeling that it is both rudderless and wilfully clueless in its attempts to address the challenges the country confronts, both social and economic. Meanwhile, hopes that some kind of peace agreement might be near between Iran and the US have once again been dashed as hostilities between the two sides have become an almost daily occurrence. Europe's almost-forgotten war also rages on with little prospect of a ceasefire given President Putin's statement this week that there was no point in meeting Ukraine's president for face-to-face talks.

And yet despite all of this, there were some significant positive developments this week affecting both the US and UK economies and the oil price and given that they didn't get much coverage I thought that I should at least attempt to lighten the mood by talking about them in this week's update.

## IPO fever

First to the US, where IPO fever is building ahead of SpaceX's flotation. Incredibly, the issue is about 4x oversubscribed. If I am doing my maths correctly, that amounts to bids of about $300bn which for a stock which redefines the meaning of 'concept' is remarkable indeed. Whether this apparently successful debut will translate into a profitable aftermarket is anyone's guess but for me this underlines the continued global investor enthusiasm for all things AI-related, even if many of the stocks are now on ratings that I do not understand and cannot justify. Right now, the AI industrial revolution bulls are in charge, despite one or two stocks having struggled recently including Oracle.

## AI progress

The launch this week of [Anthropic's latest frontier model, Fable 5](https://www.anthropic.com/news/claude-fable-5-mythos-5), has also created a lot of excitement as it really does appear to be living up to the hype as 'the best model in the world' and will be priced as such post-22 June _(note from Jon: it really does raise the bar significantly from the previous state-of-the-art)_.

**Update 13 June** – apparently, [Fable 5 was too powerful for the US Government to be comfortable with](https://www.bbc.com/news/articles/c932g3v3e13o) non-US citizens using it. Anthropic has pulled the release, and just like that, we are back in the relative dark ages.

![FrontierCode accuracy vs cost for Claude Fable 5 vs Opus 4.8 shows a huge increase in accuracy even at the same cost level.](https://cdn.sanity.io/images/v3acfbvo/production/bf9a06a3232faba1bdb9e4c8f48b583b9517dbc0-1920x1080.jpg?w=1600&fit=max&auto=format)

Quite what this means for the other frontier models (OpenAI's ChatGPT 5.5 and Alphabet's Gemini 3.1 Pro) is not yet clear, but there are some signs that price competition, not surprisingly, will be a key factor in this market. I saw some data this week – the Silicon Data LLM Token Expenditure Index, to give it its full name – which shows how much money is actually being spent on AI tokens. Interestingly, the index peaked in late May and has since declined noticeably by about 10%. This is ahead of news that OpenAI is apparently considering significant token price cuts to win enterprise share back from Anthropic, which will be great news for adoption and ease '[tokenmaxxing](https://en.wikipedia.org/wiki/Token_maxxing)' concerns. But of course, it will result, if true, in lower margins, which is not helpful if you're trying to convince the stock market that your $1trn valuation is justified by future profitability levels.

![Token prices increased this year, but are now on a downward trend.](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/4d7ca97b-a5a3-4acc-b2a5-58b4a477679e-39c9f7147c2c-light.png)

## Inflation data

The most significant macro data announced in the US this week was May's inflation data. It showed that the headline rate had increased to 4.2%, which was a three-year high and in line with expectations. (Fuel price inflation is much higher in the US because taxes on fuel are so much lower – the oil price increase has therefore had a bigger effect on the downstream price.)

![US inflation accelerates to its fastest pace since 2023.](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/fc267060-cdb2-49a7-8e68-8e79e07faac9-739dff8eb940-light.png)

Although this headline rate is troubling and the Fed will remain concerned, it will have been encouraged by the fact that core inflation in the US, which strips out more volatile food and energy prices, only increased marginally, from 2.8% to 2.9%, suggesting that the much-discussed second-round effects are very muted in the US.

By way of comparison, UK headline inflation was at 2.8% in April and core inflation at 2.5%. Both will increase in May, but the starting point here is that inflation in the UK is lower than it is in both the US and Europe. The ONS will release April GDP data tomorrow. It is expected to show that the economy contracted by 0.1% in April after a decent Q1. We will wait and see, but my guess is that there is a little more momentum in the economy than the consensus believes, despite all the gloom – reflected in good mortgage approvals and better-than-expected retail sales data, for example. I am hopeful for a better outcome.

As for those better-than-expected data, it's worth dwelling on them for a moment. In April, mortgage lending growth remained above 3%, and consumer credit growth was close to 9% despite higher market interest rates and their impact on new mortgage loan pricing. This is encouraging and suggests, as the FT wrote yesterday in an outbreak of muted optimism, that the consumer economy in the UK may once again be defying the bearish consensus. Indeed, the FT highlighted that the mortgage data was so strong that some economists didn't believe it.

Both Oxford Economics and Capital Economics were suggesting that seasonal adjustments were to blame and that a weaker housing market was 'just around the corner'. This is standard fare from these perma-bears, but the reality is, as the FT article suggests, that after a period of good real wage growth and a massive savings glut, UK households are better equipped to deal with higher rates and the 'country's seemingly constant state of disarray'. This is something I have been arguing for months, and it appears that at last my lonely perspective is attracting a few adherents.

## Retail sales data

Finally, to the retail sales data that was released earlier this week, which attracted no attention whatsoever. In summary, the BRC data for May was massively better than expected and showed a year-on-year increase of 3.7%. Food sales were up 3.9% and non-food sales up 3.5%. Now the BRC say this is because of good weather and bank holidays in May, which is a fair point. But the weather was no secret, nor were the bank holidays, and this still doesn't explain why the consensus expectation was so much lower.

My own half-full perspective is that these data reinforce the mortgage-lending outcome, which shows that UK households are more resilient in the face of abject political stupidity, higher fuel prices, and higher mortgage rates. They are just getting on with life and probably saving less and spending a bit more. When the MPC eventually decides to dismount its academic high horse in economics and get on with cutting rates, this momentum in the economy will gain strength.

## Oil prices

Finally, some good news on oil prices. Although the conflict between Iran and the US and Israel looks like it will continue for the time being, and a peace agreement seems unlikely, the dire forecasts about what would happen to the oil price if the war lasted for more than a few weeks have proven to be wrong.

![Oil remains around $90 a barrel despite the war entering its fourth month.](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/a7281856-278b-4ff8-b71f-d8082af0df90-fe165fa04a11-light.png)

The oil price is hovering around $90 a barrel despite the war having entered its fourth month (I have written about why in a separate update, which will be published soon). Clearly, a significant fall (up to 5 million barrels a day) in Chinese oil imports is playing a big part, as is the drawdown on global reserves and the supply that is reaching export markets via pipelines that avoid the Strait of Hormuz. These are all now well known.

What might be less appreciated is that, despite the ongoing conflict, an increasingly significant number of ships are now navigating through the Strait of Hormuz despite the obvious Iranian military threats. Yesterday, the US energy secretary said that ship traffic through the Strait of Hormuz was 'rising very meaningfully' and would continue to rise. President Trump added that 200 commercial ships and 100 million barrels of oil had passed through the Strait 'helped' by the US. My understanding is that these events are occurring at night with ships' transponders and other electronic signals turned off whilst being escorted by US military capabilities. Whilst the Trump rhetoric about the success of this operation might not be that reliable, it does appear as if Iranian leverage is being gradually undermined, possibly significantly undermined by developments on the water.

## ECB tokenism

Finally, whilst not wishing to dampen the tone of this note, I should also comment on yesterday's ECB tokenism. In its infinite wisdom, the ECB has decided to increase interest rates by 0.25% to 2.25% following a unanimous vote at its policy-setting meeting.

As usual, the standard central banker guff accompanied the decision, including the need to contain the inflationary consequences of this 'major energy price shock'. The justification for this increase was that higher oil prices are expected to lead to food, goods and services inflation, which means that the ECB is expecting the headline rate to average 3% this year and to fall back to the 2% target in 2028. Apparently, the ECB staff revised up their baseline inflation projection from their March meeting despite the fact that oil prices are now significantly lower than they were then. In fact, Brent crude peaked at $118 per barrel at the end of March and is now at $92. When set against the ECB's utterly feeble growth expectations of 0.8% this year, followed by a rampant 1.2% in 2027, and a near booming 1.5% in 2028, one has to wonder what on earth is motivating these people.

I suspect that the obvious weakness of the EU economy will mean that the second-round effects of this oil price shock will be far less than the ECB imagines, both in terms of wage demands and price increases.

In summary, I suspect this rate increase will have absolutely no impact on inflation, and it certainly won't have any on the energy price, but it will damage growth. That's why I describe this decision as 'tokenism'.

It's not often central bankers make you laugh and so I couldn't let this moment of mirth pass without commenting. Yesterday, the ECB announced that it had unanimously voted to increase interest rates following what it described as a 'major energy price shock', having not done so at their March meeting or at April's, when the oil price was nearly $30 a barrel higher than it was yesterday. Ironically, with the ink barely dry on the ECB's warnings about second-round effects, we learn today that the prospects of a deal to bring the conflict to an end are closer than at any time since the war started, and the oil price has responded by falling further below $90 a barrel. In fact, the price is now less than $20 above where it was before the war started, but more than $32 below its late-March peak. Clearly, the ECB cannot have anticipated these events, but what seems clear to me is that this inexplicable decision, taken against a painfully weak EU economic backdrop, looks to have been motivated more by a desire to demonstrate monetary policy credibility than by the needs of the economy.

## What to look out for next week

It's a pretty busy week on both sides of the Atlantic in terms of macro data. The highlights for me will be UK inflation numbers on Wednesday, unemployment and average earnings numbers on Thursday and retail sales on Friday. The corporate calendar is once again quiet although lots of attention will be focused on the SpaceX aftermarket and any further news on upcoming giant IPOs.