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Bailey due to testify ahead of the Lords EAC at 15:00GMT

BOE
  • Governor Bailey is due to testify ahead of the Lords EAC at 15:00GMT.
  • In focus will be how he frames the data seen over the past two days.
  • The labour market data was tighter than expected. Private sector regular wage growth did not fall back as much as expected - and the downtrend in recent wage growth appears to be stalling slightly.
  • This morning's CPI data saw services CPI come in softer than markets expected - but only 0.1ppt below the Bank's forecasts. And even then it was less than that if you compare the BOE rounded number to the actual outturn. On top of this air fares were a contributor to the downside miss.
  • In sum, we think yesterday's wage data was significant. We think majority of the MPC wants to see meaningful falls in wage settlements data before voting for a first cut. But CPI data was broadly in line with the Bank's forecasts - so despite being a market mover today we place much more weight on yesterday's data in terms of swaying MPC timing.
  • We wrote in the BOE review that we thought there was a 25% probability of the first cut in May, 40% in June and 30% in August. June has the advantage of seeing wage data through to April - but with large revisions still affecting the data we see value to the Bank wanting even more clarity. So we would reduce the probability of May further and see June (or even August) as much more likely now.
  • We await to hear any insights from Bailey over the next few minutes.
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