BoE Pricing Twist Steepens Post-CPI, Fails To Test Yesterday’s Hawkish Extremes

While the BoE-dated OIS strip is a touch steeper in light of the slightly firmer than expected round of domestic CPI data, we haven’t tested yesterday’s wage-driven hawkish extremes and pricing for next month’s meeting has edged a touch lower.

• That leaves 31bp of tightening showing for next month, while terminal policy rate pricing shows a little above 6.00%.
• The post-CPI feedthrough has likely been capped by the fact that airfare provided a notable driver when it came to the modest upside surprise witnessed in the headline figures, along with the push higher in services CPI.
• On the outlook for future BoE moves Nomura have noted that the “question of whether the Bank upshifts again is likely to be hotly debated. In our view, discussions on this are premature given the data we have ahead of the September meeting. Not to mention, sufficient weakness in surveys, such as the PMIs, might help tilt the balance to not upshifting again. Moreover, we think the MPC is likely to look through more volatile components; an important driver of July services inflation was the volatile air fares component, which the Bank typically removes from its measure of “core services”.”