VIEW: TD Securities Flag Hawkish Risks In Wake Of Data

TD Securities note that “the MPC's preferred wage measure rose 8.2% y/y in the three months to June (MPC forecast 7.6%). This comes despite the two-month rise in the unemployment rate (from 3.8% to 4.2%) being the fastest since the GFC (ex-COVID).”

• “The surprise in wages alone sets a minimum of a 25bps hike in September. Notably, the ONS also said that June wage data would be revised up further next month. While this might not affect core wages (it's due to NHS & seasonal factors), it will still matter on the margin.”
• “While inflation came in at 6.8% y/y as the MPC expected, the all-important services inflation reading came in stronger, at 7.44% (MPC forecast of 7.25%). Airfares and hotels contributed to this upside surprise, as did regulated social housing rents (which the MPC may look through).”
• “The case for 50bps is looking very tempting, and any further upside surprise to the above data in September could cement that outcome. We continue to expect a terminal rate of 5.75% reached in November, but risks that they achieve this by September are growing.”