GBP Data Check: Evaluating Dovish Trends and Bank of England Expectations

GBP: Data check this week

The pound emerges from a difficult week where the dovish rhetoric ahead of future Bank of England decisions consolidated and markets continued to scale back tightening expectations. It must be noted that the largest contributor to the dovish re-pricing in the GBP curve has been the BoE’s own communication, which seemed to shift more in favour of a higher-for-longer rather than a higher peak.

One bit of data that endorsed the dovish narrative came from the BoE’s Decision Maker Panel survey, which showed a widespread decline in inflationary pressure. But the BoE has made clear that it’s hard data that matters, and this week’s UK calendar will be quite helpful in that sense. Wage and jobs data will be the key release tomorrow. Private sector wage growth currently stands at 8.2% and looks likely to remain unchanged, but there’s an outside risk that we see this nudge slightly lower. The unemployment rate may also nudge a bit higher.

All that may fail to invert the dovish trend on UK rate expectations ahead of next week’s Bank of England’s policy meeting, although the pricing has already dropped quite substantially (16bp priced in for September, 35bp to a peak). Our economics team still thinks the BoE will go ahead with a hike this month. Inflation figures are out one day before the meeting, so while more GBP weakness is possible around this week’s data releases, next week could see some recovery. EUR/GBP may be trading well above 0.8600 once we get to the BoE meeting.