UK headline inflation has returned to 2% as expected, but services inflation has surprised to the upside, coming in at 5.7% compared to the estimated 5.5% and the Bank of England's forecast of 5.3%. This persistent services inflation makes it challenging for the Bank of England's Monetary Policy Committee (MPC) to justify a dovish shift. As a result, market expectations for a rate cut have been adjusted. Traders are now forecasting a reduction of 39 basis points in 2024. Market probabilities for a rate cut have decreased, with the implied rate for August rising and expectations for a cut in the autumn more likely. Market expectations for a rate cut tomorrow have dropped to 5.34% from 10.59%, for August to 34.5% from 42.2%, and for September to 75.2% from 79.6%.
Traders pared bets that the Bank of England will ease monetary policy in the coming months after data showed services sector inflation remained higher than expected in May https://t.co/YHKsbgciuA
Inflation back to target but markets do not expect a rate cut 'til autumn. Services prices still rising 5.7% - precisely the sort of sticky domestic inflation the Bank feared. Market expectations of a cut: Tomorrow 5.34%, down from 10.59% Aug 34.5% (42.2%) Sept 75.2%(79.6%)
Note of caution re today’s inflation figs. While overall CPI rate is back to 2%, services inflation is still 5.7%: ABOVE economists (5.5%) and BoE (5.3%) forecasts. Upshot is actually markets have slightly REDUCED the prob of an Aug cut. Look: the implied rate for Aug just ROSE👇 https://t.co/1pWYUqksch
Traders are adjusting their expectations for a Bank of England rate cut following the release of UK CPI data. They are now forecasting a reduction of 39 basis points in 2024.
UK Inflation Sorry to be a debbie downer Yes headline inflation is back to 2% (as exp) but services inflation has surprised to the upside coming in 5.7% vs 5.5% est As long as service inflation stays sticky, will be difficult for the MPC to justify meaningful dovish shift