Bank of England Encouraging news

Research evidence excerpt

Bank of England Encouraging news

Barclays | Bank of England

Relative to our own forecast, updated today and using a similar time frame for energy prices,

the BoE's mark-to-market outlook would be in line for Q3 and roughly 0.2pp higher in Q4. This

difference could be more than explained by our differing views on food price inflation, which we

think the MPC will have to revisit when it does a fuller forecast update in July (see Weak data,

lower energy, 18 June).

This revised outlook matters for the MPC's discussions, as a lower inflation peak implies

reduced risk of deanchoring inflation expectations, less risk of a meaningful catch-up dynamic

in wage growth and margins, and less risk of broader second-round effects, all arguments

currently made by those advocating for hikes, and acknowledged as risks by those in the

majority. This is particularly true given that the downward revision is most likely to come

through the most expectations-salient parts of the basket: energy and food.

The minutes suggested the MPC has taken little news from recent data on activity. On the

labour market, the overall conclusion was that data "continued to be consistent with a gradual

loosening in the labour market", from a position where slack already exists. There was some

evidence of pushback on our assessment this morning that wage growth is running slightly

below the 2%-consistent level, citing a negative drag from compositional effects and also public

sector and bonus pay growth being high. This represents a bit of a departure from our

understanding of the committee's focus, which, to our minds, has historically given more

weight to regular private sector pay metrics that could be more closely tied to supply/demand

dynamics in the economy and to pass-through to inflationary pressures.