Wage growth and underlying pricing pressure remain a concern for the central bank, which has said a return of inflation to its target is not enough on its own to start cutting interest rates.
Data on Wednesday showed annual consumer price inflation in May came in at 2%, slowing from April’s 2.3%, although services price inflation, which the BoE thinks gives a better picture of medium-term inflation risk, was 5.7%, above estimates.
So, things under the hood look murky, leaving Bank of England Governor Andrew Bailey little choice but to wait out, with markets fully pricing in a rate cut only in November.
Bailey opened the door early last month to a rate cut, saying he was “optimistic that things are moving in the right direction” but data since then has been less assuring.
Almost all 65 economists polled by Reuters last week expect the bank to move in August, with traders pricing in a 30% chance of that happening.
With Bailey and his colleagues cancelling public events when Sunak called the election on May 22, markets have had very little to gauge what the central bank is thinking and a surprise could well be in store.
