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Inflation data due at 7:00BST

UK DATA
  • Inflation data is due for release at 7:00BST and is expected to see headline CPI fall into single digits for the first time since August (consensus looks for 9.8%Y/Y with a slight downward skew to the survey responses).
  • Core CPI is also expected to tick down from 6.2%Y/Y to 6.0% with a larger downward skew - there are almost as many analysts looking for a 5.8%Y/Y print as 6.0%Y/Y in the Bloomberg survey.
  • Last month’s print saw a 5 tenth upside surprise to both headline and core CPI that we think was a contributing factor to the MPC’s decision to raise rates by 25bp at the March meeting with services inflation rising +1.0%M/M.
  • The evolution of services inflation will continue to remain one of the main drivers of UK monetary policy in our view.
  • Following yesterday's labour market data which showed continued strength in private sector wages, markets are pricing in around 22.5bp for the May MPC meeting (up from around 20bp prior to yesterday's data) and a cumulative peak of 61bp by September (up from around 52bp prior to the data).
  • The MNI Markets team thinks pricing for May will only see marginal movements here - even if it is a much higher number today than expected it will be hard to move much above 25bp (as a 50bp hike doesn't really look on the table here) while yesterday's wage data is probably still enough to see around 20bp priced even on a soft print today. The terminal rate expectations are more susceptible to a larger move, however, and we see balanced risks here.
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