In the run-up to the August 3 meeting, we will only get one inflation report and one labour market update. It is unthinkable that a June CPI print of around 8% wouldn’t lead to another hike. We forecast a 25bp move, but the upside risks are clear and likely to materialise if there is no improvement in the hard data.
Hheadline inflation is expected to decelerate sharply over the course of the summer – even as UK inflation has a tendency to defy expectations – and that may lead to softer wage and price demands. It also means that the urgency to be “seen to be doing something” slowly eases. We therefore pencil in one more 25bp hike in September, before a long pause. However, if inflation flares up again, the central bank may have to continue hiking. Even as the BoE was among the first of the large central banks to engage in rate hikes, the UK's inflation persistence means it will be among the last to complete its hiking cycle
- Rabobank
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