United Kingdom: BoE hold view reinforced – Nomura

Nomura’s Global Markets Research team, including Josie Anderson, George Buckley and Andrzej Szczepaniak, notes that UK CPI data for August came in broadly as expected, with headline inflation at 3.1% and core and services measures unchanged. They argue this likely secures an unchanged Bank Rate from the BoE in September, but highlight that rising energy prices and the Iran war could push inflation higher and increase pressure for future tightening.

BoE seen holding as energy bites

"This is unlikely to be the final word on rising inflation, with elevated energy prices likely to exert further upward pressure on inflation over the rest of the year. Policymakers are therefore likely to come under increasing pressure to make policy more restrictive, particularly if the Iran war continues to drive upside inflationary pressures."

"As today’s figures were broadly in line with consensus, they likely cement a BoE decision to leave rates unchanged this week. Comments from policymakers have made it clear that they are likely comfortable with Bank Rate where it is for now, particularly as they view it as restrictive and that they would have reduced it this year if not for the Iran war."

"However, surging energy prices once again are raising the prospect of central bank tightening and, while today’s data did not surprise, inflation is now above 3%, and we expect it to move higher in coming months, likely increasing the pressure on the MPC to raise rates."

"Elsewhere, looking at upstream prices, output prices were weaker than we expected, rising by 0.7% m-o-m (we had thought the rise in energy prices would push this figure even higher) and input prices were also softer, rising by 0.3% m-o-m, while we had expected a 0.5% increase (though we note the July fall was revised smaller)."

"The lack of an increase in core and services inflation likely cements an unchanged Bank Rate decision from the BoE this week, following yesterday’s mixed labour market report. Despite rising energy prices, BoEspeak has been clear that the majority of the MPC likely prefers to keep rates where they are this month."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)