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7-2 vote increasingly likely; more clarity only likely post-election

BOE
  • Overall, we think today's CPI data cements a 7-2 vote at tomorrow's meeting with rates unchanged. We don't think that this is enough of a shift to move Ramsden back to voting for an unchanged Bank Rate (and almost certainly not for Dhingra) and we don't think there are any MPC members seriously considering voting for a hike here either. Note that services CPI was 0.42ppt above the May MPR forecast but headline CPI was only 0.05ppt above.
  • Looking at market pricing, around 3bp of cuts have been removed throughout the curve in early SONIA trading with markets now pricing around 41bp by year-end.
  • There does appear to be some inconsistency here with the labour market data, and possibly with the BOE's view that less wage growth is being passed through to price increases. As we noted in our labour market review, retail and hospitality wage growth is a bit softer than expected - but we are still seeing stickiness particularly within restaurant and accommodation prices.
  • The question for the MPC now is are these service price increases just one-off catch ups to take account of previous high inflation, or is there going to be a greater passthrough of input costs into output prices again?
  • The former would probably point towards these data not stopping an August cut, the latter would likely push a cut later down the line. Will we get more clarity on this tomorrow? Probably not in our view, so the real key for UK markets will be any speeches made by Governor Bailey or other MPC members after the election communications blackout period ends.
  • Overall, we don't think that today's data has breached the bar to change guidance at tomorrow's meeting - but we are close so it can by no means be completely ruled out. We think any change would be a surprise to the market, and possibly see another aggressive retightening.
  • Our full preview MPC preview is available here.
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