Inflation due 7:00BST

• The key number for this week’s MPC decision is likely to be services inflation. The BOE expected a 7.2%Y/Y increase in August while the median expectation from the analyst previews that we have read is 7.3%Y/Y (a tenth higher than the Bank’s expectation). There is also an upward skew here with only 1/11 analyst expecting a 7.2%Y/Y rise but 3/11 analysts expecting a print of 7.4%Y/Y (which would be unchanged from July) while 2/11 analysts look for an acceleration in services inflation to 7.6%Y/Y.
• We think that a print of 7.4%Y/Y in services inflation would be enough to nudge market pricing up to at least 22bp and a print of 7.6%Y/Y as seen by a couple of analysts may even see markets price in a small probability of a 50bp hike this month.
• However, if services inflation was to come in at 7.2%Y/Y in line with the Bank’s own forecast, we still think that the MPC would go ahead with a hike, but market pricing would likely fall back further, possibly to somewhere in the region of 15bp for the September meeting. If services inflation came in even softer than 7.2%Y/Y then, absent the move having been driven by some strange temporary factors, we would expect markets to be pricing in closer to a 50/50 probability of a September hike.

For the full UK Inflation Preview click here.