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Inflation data due at 7:00GMT (2/2)

UK DATA
  • The Bank of England’s MPR forecasts published earlier this month expected headline CPI to come in at 4.1%Y/Y in January (up one tenth from 4.0%Y/Y in December). This is in line with the median of the analyst previews that we have read (and the Bloomberg consensus), however we noted that there are a number of prominent forecasters looking for an increase to 4.3%Y/Y this week, reflecting by the mean from the previews that we have read coming in at 4.17%Y/Y.
  • In terms of services inflation, the Bank’s MPR forecast was 6.6%Y/Y. This is lower than the median of analysts previews that we read (6.7%Y/Y) while the mean was 6.80% (in line with the Bloomberg median). The Bank’s forecast was 6.6%Y/Y – and so overall the sellside is looking for a small upside surprise to services CPI versus the Bank.
  • There was a hawkish repricing of expectations yesterday triggered by a combination of both higher-than-expected wage data along with a higher-than-expected US CPI print. Pricing for the June MPC meeting move from -17bp (around 70% of a 25bp cut priced) to -8bp (around 33%). And an August cut is now no longer priced (-20bp / 80% prob) from -33bp. In terms of year-end pricing we have moved from -79bp priced (i.e. fully pricing 3x25bp cuts) to -60bp which represented around a -19bp move on the day yesterday.
  • In some ways we think that yesterday's wage data was more important than today's CPI data given that the majority of the MPC wants to see more evidence of cooling in the labour market before pulling the trigger on cuts. This suggests that we may not see as big a reaction as would normally be expected on a lower print. Particularly as there seems to be a downward skew in the services CPI expectations. However, we balance this against the fact the market has already repriced a lot, and is at fairly extreme levels with positioning favouring cuts already cleaned out somewhat.
  • Overall, we think there is potential for a decent move either way.
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