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Inflation data due at 7:00BST

UK DATA
  • UK inflation data is due at 7:00BST. This is probably the single most important UK data release for markets at present. Economists forecast CPI at 6.7% y/y in March, a decent increase from the 6.2% y/y in February, which was the highest level since March 1992. Core inflation is expected to rise more moderately, to 5.3% from 5.2%, the record-high a month earlier.
  • Looking at the survey breakdown, economists see some downside risks to today's headline print while our data team note that a surge in fuel costs suggests upside risk to the consensus forecast. In terms of core inflation, analysts are fairly split between 5.3% and 5.4%, so there appear to be upside risks here.
  • SONIA futures moved higher after yesterday's lower than expected US CPI print. However, markets still price in 28bp for the BOE's May meeting (unchanged in the last week or so but down from 35bp shortly after the March meeting). Markets continue to price around 137bp of hikes by year-end. We have remained in a broad 128-148bp range since 22 March, so are in the middle of the recent range.
  • A surprise to CPI today could therefore see some two-way risks to SONIA futures when they open at 7:30BST. We still think overall there is too much priced into the curve but unless we get a surprisingly low print today we're unlikely to move out of that range.
  • Note that although this is the biggest remaining data release ahead of the May MPC meeting, as the data is for March it doesn't incorporate the increase in the energy price cap which came into effect on 1 April so inflation will still rise further from here.
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