June 22, 2022 05:50 GMT
- Today's May inflation data takes on added significance in our view (alongside the June inflation print and next month's labour market report) as the MPC left the door open last week to a larger-than-25bp hike in August, depending on the data.
- As of yesterday, markets were pricing around 56bp of hikes for the August meeting, down from a high of around 61bp.
- MNI think that the decision is really between 25bp and 50bp (with 75bp extremely unlikely at this juncture), and ahead of today's data assign around a 60% probability to a 50bp hike.
- Headline CPI is forecast projected to tick up a further 0.1pp to 9.1% in May, although economists are generally split between looking for a print in the range 9.0-9.2%Y/Y.
- Core CPI is expected to see a modest 0.2ppt fall to a still very hot 6.0%Y/Y, with a larger range of estimates generally in the 5.9-6.3%Y/Y range.
- Given how much the market is already pricing in, we are likely to see a bigger market move in reaction to a softer print than a higher print. We would also expect that we may see an initial reaction in sterling FX, and then a potentially bigger reaction at 7:30BST / 8:30CET when STIR markets open.