MNI Gilt Week Ahead: Inflation and MPC speakers in focus

• Last week saw some big volatility in UK rates markets (although relative to the moves seen in US and European markets last week, sterling markets were relatively stable!) The most important domestic event was the change in language from the Bank of England, removing explicit time-dependent forward guidance and replacing it with language that leaves the door open to hikes of a different scale – opening the door to 50bp from the wider MPC. Market pricing in the aftermath of the meeting moved to price around 60bp for August (i.e. fully pricing a 50bp hike with a 40% probability of August), but as we argue in the MNI BOE Review (see link in main document), we think the real probability should be closer to 25bp being fully priced with a 60% probability of a 50bp hike.
• There are three main data points that we think will be absolutely pivotal: the two inflation prints and the next labour market data release. The first of these comes this week on Wednesday with the release of May CPI data. Economists are generally split between 9.0-9.2%Y/Y for headline (from 9.0% in April) while core is expected to come in anywhere between 5.9-6.3%Y/Y in an unusually large range. This was 6.2%Y/Y in April, so 13/23 economists in the Bloomberg survey expect a lower core CPI print in May than April.
• In addition to inflation data on Wednesday, the week ahead also sees the release of retail sales data on Friday. This will give us the best picture yet of the state of the consumer in May, but is unlikely to really make a huge difference in isolation to the MPC’s views of tightening.
• The week ahead will see scheduled appearances from the MPC’s Haskel and Mann today. Haskel will be speaking at a TechUK Policy Leadership Conference so it is questionable whether he will be answering any questions on monetary policy. Catherine Mann is due to appear in an MNI Connect webinar. There is a link to register here in what should be a very interesting event. Note that Mann is one of the more hawkish members of the MPC having consistently been among the members voting for a 50bp hike.
• Pill is due to speak tomorrow and on Friday (but he spoke on Friday last week so again it is unlikely if he will say anything new at either event). Cunliffe is due to speak on cryptocurrencies on Wednesday (and probably won’t address monpol in a meaningful way) while Haskel is due to speak on Friday at Chatham House on the global economic system. His comments are likely to be interesting too, in our view.

GiltWeekAhead20220620.pdf