At the start of the year, experts envisaged the current Bank of England hiking cycle would end by the summer. Incredibly, markets had even priced in multiple rate cuts before year end. That view appears to have dissipated, as policymakers push monetary policy further into restrictive territory.

The Monetary Policy Committee is expected to lift the main lending rate by 25 basis points to 4.75% at the culmination of its meeting on Wednesday. The majority of economists polled predict a 7-2 vote in favour of a quarter-point hike, although some foresee a more aggressive voting pattern.

“This week, much hinges on UK CPI data for May,” Barclays’ Ben McLannahan said. “An upside surprise relative to our projections could lead to a more hawkish MPC vote split than our base case (1-7-1 for +50bp/+25bp/+0bp), but we think the bar for the BoE to deliver 50bp is high.”

BofA analysts posited that given strong wage and price momentum there is a risk that the more hawkish members of the committee vote for a 50bp hike, and a greater risk than recent meetings that one of the doves votes to hike 25 basis points. “We assume a 2-6-1 vote (hold, 25bp, 50bp), with wide risks.” (LiveSquawk - Continue Reading)

UK households continue to endure elevated costs pressures as the Office for National Statistics reported that the average price of a basket of goods remained steady last month, contrary to predictions of a larger decline.

Annual inflation rose 8.7% in May unchanged from April and higher than the 8.4% estimate. On the month, CPI increased 0.7%, two-tenths higher than consensus but lower than the 1.2% rise in the previous month.  The annual core rate also rose unexpectedly to 7.1% versus the 6.8% forecast and last month.     

 “After last month’s fall, annual inflation was little changed in May and remains at a historically high level,” ONS Chief Economist Grant Fitzner said. “The cost of airfares rose by more than a year ago and is at a higher level than usual for May. Rising prices for second-hand cars, live music events and computer games also contributed to inflation remaining high.”

Statisticians reported a fall in the cost of petrol and although still high, there was a softening of food price inflation. Food and non-alcoholic beverage prices rose by 18.4% in the year to May, down from 19.1% last month and from 19.2% in March, which was the highest annual rate seen for over 45 years. (LiveSquawk - Continue Reading)

The Swiss National Bank is widely expected to raise its benchmark interest rate this week, with most analysts expecting a small move as some wonder if this will be the last example of monetary tightening before the rate-setters in the Alpine nation shift gears and start loosening policy again next year.

A poll of economists predicts the SNB will raise its policy rate 25 basis points to 1.75% on Thursday, but some observers forecast a bigger move.

“The SNB has struck a hawkish tone in recent communications, so we think a 50bp hike to 2% is more likely, wrote Adrian Prettejohn, Europe Economist at Capital Economics. “Vice-Chairman Martin Schlegel noted that ‘inflation is spreading to other goods and services, not linked to energy and supply bottlenecks’. And [bank president] Thomas Jordan said the SNB needed to bring inflation back below 2% as soon as possible. (LiveSquawk - Continue Reading)

The Central Bank of the Republic of Turkey is widely expected to deliver its first interest rate rise in over two years on Thursday. However, economists are uncertain about how aggressive rate setters will be executing the first hike since March 2021. 

An economists’ poll forecasts the central bank to hike by 1150 basis points to 20% from the current 8.5% at Thursday’s meeting. 

HSBC look for a 200-bps increase adding that they expected a more conventional approach to FX policy, “with the lira being allowed to depreciate in response to increasingly unfavourable external dynamics, does not necessarily guarantee a conventional approach to interest rate policy, in our view.” 

“We pencil in an additional 500bps of tightening for each of Q3 and Q4, which would take the key rate to 30% by year-end,” analysts at the bank wrote. (LiveSquawk - Continue Reading)