The chart below shows how other contributors to the CPI headline figure have fallen with some measures like fuel and electricity/gas turning negative (deflationary) on a year-on-year basis. However, services inflation (grey histograms) have shown little progress and remain at elevated levels – threatening the overall inflation outlook.
Source: Macrobond, ING
The chart below shows the little progress made in the services sector with both average wages and services CPI having made tiny inroads but appear to be heading in the right direction. Therefore, ahead of tomorrow’s Bank of England rate decision, there may be a nod to a future rate cut but the committee is likely to point to this stubborn stickiness of services inflation for its lack of urgency to alter interest rates.
Source: Refinitiv, Fathom Consulting
Markets assign around 5% chance of a cut after tomorrow’s BoE statement, with a greater chance of a move in September.
Implied Interest Rate Path in Basis Points
Source: Refinitiv, prepared by Richard Snow
On the back of the stubborn services inflation print, GBP/USD rose a tad in the minutes after the release.
GBP/USD 5-Minute Chart
Source: TradingView, prepared by Richard Snow
GBP/USD continues to edge higher after hawkish revisions to last week’s Fed projection for inflation and growth jolted the dollar back into life. The pair appears to have found support around 1.2685 ahead of the BoE meeting with 1.2800 the next notable level of resistance.
GBP/USD Daily Chart
Source: TradingView, prepared by Richard Snow
