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CPI due at 7:00GMT

UK DATA
  • CPI data is due this morning at 7:00GMTon Wednesday morning. The past four releases have all seen upside surprises. Consensus looks for a rise from 5.5%Y/Y to 6.0%Y/Y with core rising from 4.4%Y/Y to 5.0%. These forecast increases are in spite of a downward pull of petrol prices in February.
  • Given the intense focus on inflation, this data will again be closely watched.
  • Markets are currently pricing in around 33bp for the May MPC meeting (25bp fully priced with around a 33% probability of a 50bp hike) with 94bp priced by the August meeting (so around a 75% probability we get a 50bp hike in one of the next three meetings). The curve then flattens a bit but there is still a further 50bp priced in for the final three meetings of the year (a cumulative 144bp). Note that this is around 25bp higher for 2022 than Friday's close and roughly back to where we were ahead of last week's MPC meeting.
  • Adding back these hikes has largely been a function of UK markets following the US, with Powell hinting at 50bp hikes at upcoming meetings. However, we still think that is an unlikely scenario for the UK given recent MPC rhetoric. Given how much is priced, a weak print today could see market react somewhat more than to a strong print.
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