UK inflation in line with expectations but services still too hot – ING

The latest UK services inflation numbers are a bit disappointing for the Bank of England (BoE), and the latest figure is 0.4ppt above what it had forecast back in the May monetary policy report, ING’ FX Strategist Francesco Pesole suggests.

BOE isn't cutting rates any time soon

“Things like rental growth are still pretty strong, though in line with prior months. The data all but confirms the BOE won't be cutting rates when it meets tomorrow. But we still have another report in July, and unless that's a material surprise, we suspect it will still leave the BoE on track for a cut in August.”

“In the FX market, EUR/GBP is trading at 0.8444, just slightly lower after the release, and markets are pricing in a 43% chance of a first cut in August with a total of 46bp by year-end.”

“Although today's inflation data is a bit of a mixed bag, we still see higher EUR/GBP in the medium term. While political risk in the EU may slow the Euro (EUR) gains in the near term, we believe the policy narrative will ultimately drive a substantial move higher in EUR/GBP, and we expect a move to 0.87 by late summer.”