UK Inflation and Wage Data: Shaping the Path for the Bank of England After November

UK inflation and wage data to help shape BoE path after November

UK inflation and wage data to help shape BoE path after November

The Bank of England has made it abundantly clear that it’s watching services inflation and wage data, and not a whole lot else, to judge how many further rate hikes are needed. We discussed recently why a September pause is unlikely but not totally out of the question, and why we think a November hike can hopefully be avoided. But that latter prediction hinges on the data showing a bit of improvement, and here’s what we expect over the next week:

Jobs/wages (Tuesday): The jobs market has been cooling, and we expect to see further signs of improving worker supply in next week’s figures. Indeed there’s a risk that the unemployment rate ticks another 0.1pp higher. For now though wage pressures remain strong and we think private sector wage growth will remain at 7.7% (measured as the last three month’s average compared to the same period last year). That will slip back over the next few readings, but the downtrend is going to be slow. We tend to agree with the BoE’s forecasts that this will have only fallen to around 6% by year-end.

Inflation (Wednesday): Household energy bills fell by almost 20% in July, so it should be no surprise that the headline inflation rate should have fallen by more than one percentage point. A further improvement in food inflation should also help. But the BoE is watching services CPI and expects this to nudge up from 7.2% to 7.3% on a year-on-year basis. While the start of summer holidays leaves plenty of scope for package holidays/air fares to throw this around, we think the risk to that Bank of England forecast is to a lower reading. We expect services inflation to remain flat or in fact go slightly lower, and if so, that would support our tentatively held view that the Bank will only hike once more.

Retail sales (Friday): If June’s decent retail figures were helped by warmer weather, then the washout that was July should see a bit of weakness creep back in. July was the sixth wettest on record. Ultimately though the retail figures are of little consequence to the Bank of England right now, which is squarely focused on inflation.