British Pound: Data back Bank of England pause – Rabobank

Rabobank’s Senior Macro Strategist Bas van Geffen highlights that United Kingdom (UK) inflation matched expectations at 3.1% y/y, with higher energy and fuel prices driving the rise, while core and services Consumer Price Index (CPI) remained unchanged. Combined with labour market slack and muted selling price expectations, the bank argues second-round effects look contained and says the data clearly support the Bank of England (BoE) holding Bank Rate at 3.75% at its upcoming meeting.

UK data argue for policy hold

"UK inflation was in line with expectations, with higher energy and fuel prices the main cause of the rise to 3.1% y/y."

"Beyond that, there is very little that may alarm the MPC ahead of their meeting: core CPI and services CPI are both unchanged, and food CPI is also not doing what was expected."

"Combined with yesterday’s labour market report, which showed slack continuing to rise, and survey evidence from the DMP that showed relatively muted selling price expectations, this all suggests that second-round risks remain contained."

"Likewise, the market pared back expectations for the Bank of England somewhat after today’s inflation data."

"The data clearly support a hold tomorrow at 3.75%, which is already around 50bp above economists’ estimates of the UK’s neutral rate."