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Recap of last week's events

UK
  • Last week saw six MPC members make appearances with Governor Bailey, Ramsden, Haskel, Saunders, Pill and Cunliffe all speaking (although the latter not mentioning monetary policy). The most newsworthy comments came from Bailey and Pill. Bailey said that food price rises could be “apocalyptic” – a quote picked up by most of the mainstream media – and the overall tone of his comments was on the hawkish side, but not hugely outside what would normally be expected of him (and note that after markets overreacted to his comments in Q4-22, many market participants put a lower weighting on some of Bailey’s more sensational language). Pill’s comments were more notable in our view, he seemed to imply that for him the bar to a 50bp hike is high and that with the uncertainty there is currently that he would prefer moving gradually. To us his comments seemed consistent with 25bp hikes in June and probably August, before reassessing to see if more would be needed. We think the probability of a 50bp hike has fallen further.
  • Last week also saw a slew of data releases. The most market moving was labour market data which pointed to a continued very tight labour market with wage growth picking up notably. We also saw inflation data (which increased but missed consensus expectations by a tenth), GfK consumer confidence data, which fell again, and retail sales data (which were better than expected). As noted, the labour market data dominated, and markets ended up pricing in more in terms of near-term hikes through the week. Markets now price in 33bp for June, 69bp (cumulatively) by August, 93bp by September, 128bp by year-end and 152bp by March 2023. By our calculations this implies that the market sees around a 75% probability that a 50bp hike will be carried out in either June or August – something that we still assign a much lower probability to.

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