UK inflation persistence measures in focus ahead of data deluge
Oct 14 (Reuters) -While central banks have begun to shift away from inflation, directing their attention towards jobs and growth risks, persistence of inflation remains the top focus for BoE officials. The MPC uses three gauges to determine inflation persistence; labour market tightness, private sector pay growth and services CPI.
Looking at these measures, services CPI and private sector pay growth continues to hover at notably higher levels than pre-Covid. Meanwhile, the vacancy to unemployment ratio is back at the 2019 average.
The more hawkish members such as Chief Economist Huw Pill have preferred to take a more cautious approach to easing policy. However, with Governor Andrew Bailey leaving the door open to a faster pace of policy easing, the upcoming jobs and inflation will be key for both the policy and sterling outlook.
Though the data will have a limited impact on the BoE’s November decision, where markets see a 25bp cut as more a less a done deal, it will be notable for the December meeting. As it stands, markets attach a 44% probability that the BoE delivers a back-to-back cut in December.
Consequently, there is plenty of room for a dovish repricing should the measures of inflation persistence ease further. By extension, this would leave GBP/USD vulnerable to a deeper setback.
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UK inflation persistence https://tmsnrt.rs/4dKB3BA
UK data https://tmsnrt.rs/482Tj89
(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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