It’s currently a very tight call on whether the Bank of England delivers its first rate cut at its meeting in August. That means this week’s data, and especially the all-important CPI figures, could tip the balance for officials. We also get wage growth numbers later on Thursday, with progress in the job market giving some MPC members more confidence to eventually commence policy easing.

Regarding inflation, expectations are for both the headline and core data to hold steady, unchanged from their May prints. That prior headline release grabbed all the headlines too as it saw CPI return to the BoE’s 2% target for the first time since July 2021. The core rate, which strips out volatile food and energy costs, also pulled back, to 3.5% in May from 3.9%.

Focus on key services readings

The most important measure for the Bank of England and rate setters is services inflation. This is expected to tick one-tenth lower to 5.6%, having slipped from 5.9% in the previous report. This is still well above the MPC’s projection of 5.1% and is the crucial current concern on the minds of the bank’s hawks.

Indeed, the strength in labour-intensive CPI components reflects still elevated wage growth and particularly April’s near 10% minimum wage hike feeding through. That means pay growth is likely to comfortably exceed the MPC’s forecast, keeping services inflation relatively high.

Recent BoE speakers and market pricing

Interestingly, since the election purdah ended for BoE officials to talk about monetary policy, we have heard from some hawks, as well as Chief Economist Pill. They are all inclined not to cut rates soon, with even a soft services outturn potentially being looked through, with multiple data releases needed to change their assessment.

Markets reduced the odds of an August rate cut after those more hawkish speeches last week. There’s now around a 52% chance of an August rate reduction, down from above 60% before their comments, and roughly 48bps of total easing seen in 2024.

Market reaction

There are no BoE speakers scheduled before the 1 August meeting and this is the last week of key data points. Bulls have recently taken GBP/USD near to 1.30 which is a one-year high. But prices are overbought which gives a warning that cooler CPI and other data could see some selling.

Of course, the flip side and stronger data would likely push cable higher towards 1.30. It might also pull EUR/GBP closer to those long-term lows seen in August 2022.

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