FXStreet reports that Lee Sue Ann, Economist at UOB Group, reviews the latest UK inflation and jobs data vs. expectations of rate hikes by the BoE.
“UK’s inflation eased in July, as CPI rose 2.0% y/y. This compares with a 2.5% y/y increase in June, and below expectations for a 2.3% y/y reading. It was the first weaker-than-expected print for inflation in at least three months.”
“Meanwhile, UK’s wage growth hit a record as companies posted more than 1 million new job vacancies for the first time in an unprecedented scramble for staff following the loosening of lockdown rules. Average earnings in the three months through June surged a record 8.8% y/y."
“But the real test of the labour market will come when the government withdraws its furlough program at the end of September. This will be central to the Bank of England (BOE)’s thinking as far as monetary policy is concerned. Still, the latest inflation figures should provide some relief for policymakers, who have come under intense pressure to tweak its ultra-loose monetary policy stance in a bid to tame inflation.”
“Earlier this month, the BOE voted unanimously to keep rates unchanged... Policymakers will probably want more time to see how the labour market adjusts to the expiration of the furlough scheme before withdrawing stimulus. It was notable that the MPC abandoned its guidance that it would not look to tighten policy until “there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably”. Instead, it now thinks that if “the economy evolve broadly in line with the central projections in the August Monetary Policy Report, some modest tightening of monetary policy over the forecast period is likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term”. While we certainly would not rule out an earlier move, our base case, for now, is still for the first rate hike to come in 2023."
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