UK: Any hawkish BoE re-pricing only likely to offer GBP a one-time boost - ING

Following yesterday's positive CPI surprise, with headline inflation now touching distance away from the 3% level, the focus turns to the Jul jobs report today and in particular, whether we see a corresponding pickup in domestic wage inflation, according to Viraj Patel, Research Analyst at ING.

Key Quotes

“Our economists are optimistic here and expect average weekly earnings growth to come in at 2.3% YoY; though this may be a statistical quirk, with a low number dropping out of the 3M average, we acknowledge that survey data has also been suggesting that wage pressures are on the up in the UK. All of this will be music to the ears of BoE hawks looking for inflation evidence to justify a removal of the post-Brexit emergency monetary stimulus.”

“The risks of a ‘hawkish hold’ this week – and a third rate hike dissenter joining the ranks – have increased; in the scenario of a 6-3 MPC vote split, the initial knee-jerk market reaction could see odds of a Nov BoE rate hike rise to 50%. But with the UK political environment over next three months anyone's guess, we believe such hawkish BoE steps, if anything, should be viewed as teeing up markets for a 1H18 rate hike. Moreover, any hawkish re-pricing in the UK rate curve is only likely to offer the pound a one-time boost; we would expect Brexit to once again recapture the narrative for GBP price action in Oct ahead of key political events. Still, we believe a sustained move in EUR/GBP below 0.90 this week will almost certainly shelve any ‘parity’ fears for now. GBP/$ to test 1.3350.”