UK CPI Rebound to Test BOE's September Rate Path
UK CPI expected to hit 2.9% on higher energy costs. Services inflation likely stayed sticky at 3.4%. Markets see a 78% chance of no BOE move in September.
The UK CPI print due this morning is the week's biggest data point for sterling. Headline inflation is expected to rebound to 2.9% in July from 2.6% in June, driven largely by higher energy costs. Core inflation likely edged down to 2.5% from 2.6%, according to the median estimate.
The numbers will test the Bank of England's policy path. Swap markets price a 78% chance of no rate change at the September meeting, with the November decision seen as a closer call. Services inflation, a key focus for policymakers, is forecast to ease to 3.4% from 3.6% but remain sticky.
The headline pickup reflects the swing in energy prices, including the Ofgem price cap increase for the third quarter. Analysts also pointed to base effects in air fares. Some expect the government's Great British Summer savings policy to drag on recreational and catering prices, though the impact is seen as modest.
Barring a major upside surprise, the data is unlikely to shift the BOE outlook much, traders said. A print near 3% or higher would test the central bank's comfort zone before the next policy decision on Sept. 19.
The Eurozone final CPI for July is also due, but it rarely moves markets as it typically confirms the preliminary reading. ECB rate expectations have firmed in recent weeks. Markets now see a 91% chance of a quarter-point hike at the September meeting, up from earlier in the summer, following hawkish comments from ECB officials and rising energy prices. The ECB meets on Sept. 12.
The BOE's next rate decision is on Sept. 19. The ECB meets on Sept. 12.
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