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Inflation data due at 7:00BST

UK DATA
  • Inflation data for April is due at 7:00BST and will be a key driver for UK markets both today and over the coming weeks (note that the MPC will receive the May inflation print under pre-release access ahead of its June decision).
  • One of the reasons for the importance of the print is that there will be a number of base effects unwinding in this print (with energy prices a large factor). This means consensus expects headline inflation to fall from 10.1%Y/Y almost two full percentage points to a Bloomberg consensus of 8.2% (although excluding the outliers from the survey there are a number of estimates between 7.9% and 8.4%).
  • One of the key focuses for the MPC will be the services inflation component - probably the biggest warning sign about persistence of inflation - and that is expected to remain high. However it is core goods (core CPI in total is expected to remain static at 6.2%Y/Y) and food prices that have proved even more sticky than expected over the past few prints. There will be focus on all of these subcomponents this morning.
  • Market pricing for the June MPC meeting nudged higher yesterday from 21bp to 22bp with the terminal rate increasing from 50bp in November to just above 60bp, the highest levels since the Truss government, as markets became increasingly concerned about today's print.
  • Given the moves yesterday and what is now priced in, we think the market will likely see a bigger reaction on the back of a soft print than a higher-than-expected print, but we still see risks of moves of a decent magnitude either way. We also note that GBP FX will be the big mover to begin with and then GBP is vulnerable to another move at 7:30BST when UK STIR markets open.
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