UK inflation, which is due tomorrow and just one day before the Bank of England (BoE) provides an update on monetary policy, is expected to drop notably. This is required for the BoE’s lofty forecast of 2% inflation by mid-year to materialize.
Once more the focus will be concentrated on services inflation which remains elevated and is yet to reveal significant progress. Nevertheless, even if inflation surpasses estimates, the Monetary Policy Committee (MPC) is unlikely to alter their stance materially – supporting market expectations of a cut in August. UK rates at 5.25% hold the pound in good stead and a delayed start to rate cuts has added to its robustnes.
The committee’s vote split will be monitored closely in the event the hawks give in and decide to join those on the committee calling for a hold on interest rates. The Fed is also due to provide an update on its monetary policy along with the new summary of economic projections. The Fed’s dot plot will be key for markets in the event anything other than three rate cuts are priced in. The dots are set according to where Fed officials see interest rates at the end of 2024. Both Jerome Powell and Andrew Bailey are expected to largely maintain the same message