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BoE likely to stay divided as UK CPI rises on utilities
MUFG links the outlook to energy-price risks, noting the BoE may need to act by year-end if Middle East-driven prices stay elevated.
FXStreet cited MUFG’s Derek Halpenny as saying UK July CPI was broadly in line, with the headline rate climbing to 2.9% largely due to higher utility bills, while services inflation eased. He pointed to services prices falling from 3.6% to 3.4% as a sign of more favorable domestically generated inflation.
Halpenny said the inflation reading followed labour-market data that showed modest wage growth alongside weaker employment demand. Private-sector ex-bonus earnings slowed from 2.9% to 2.8%, and PAYE employment fell by 13,000, adding to a picture of easing inflationary pressures.
Combining the jobs and inflation data, MUFG argued it is unlikely to shift the Bank of England’s thinking significantly. The MPC is expected to remain divided, with the path for future moves more dependent on external Middle East-driven energy prices than on domestic conditions.
MUFG’s view is that if there is no resolution to reopening the Strait of Hormuz and energy prices rise and stay elevated, the BoE may have to hike by year-end. If energy prices fall, it would give the BoE room to hold off, FXStreet reported.