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We still see Aug cut as close to 50/50 - markets increase prob of cut to c. 37%

SONIA
  • SONIA futures are pricing in marginally more in terms of cuts versus yesterday following this morning's UK labour market data - with around a 37% probability of an August cut now priced (up from around 30% at yesterday's close but down from around 48% pre-inflation data).
  • This means that we are close to once again fully pricing 100bp of cuts by June 2025 (currently 99bp versus 97bp at yesterday's close).
  • Looking down the curve this means that around 2bp of extra cuts is priced in throughout the curve (through to the Greens and Blues).
  • As we noted this morning, we thought that following the CPI data that August was still "finely balanced" and we didn't think that yesterday's data would change the voting intention of any MPC member. If anything, we think that today's wage data is a little softer than we expected (albeit in line with consensus expectations), and may actually embolden some MPC members to vote for a cut in two weeks time. We still see it as close to a 50/50 decision, however, with the 3 external members unlikely to vote for a cut - which means we need 3 of the 4 remaining internal members who voted for unchanged rates in June to vote for a cut.
  • Looking ahead we still have GfK consumer confidence tonight and UK retail sales and public finance data tomorrow (as well as the flash PMIs next Wednesday). Other than the PMI data (at the very margin) we don't expect any of this remaining data to change any MPC members' voting intentions.
  • There are currently no scheduled MPC speeches - but any comments, particularly from internal MPC members, have the potential to move market pricing significantly.
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