Thursday’s UK inflation figures were generally a little lower than expected due to a sharper fall in services inflation. However, those expecting the next rate cut in September should be cautious. Most of the surprise came from volatile components. The seasonally adjusted change in the core rate was also only slightly below the average of the last 14 months and therefore still far too high. The all-clear is still not yet given, Commerzbank’s FX Michael Pfister notes.

Growth is unlikely to stop the BoE from cutting interest rates

“If inflation does not (yet) pave the way for further rate cuts, growth could. Bank of England (BoE) Governor Andrew Bailey stressed several times at the post-meeting press conference a fortnight ago that the first-quarter growth figures had overstated the underlying trend. These comments have stuck with me ever since. After all, weaker growth would be bad news for the pound. However, Bailey did not give any real concrete reasons at the press conference.”

“The most concrete argument was that household consumption has hardly grown at all. The BoE is not wrong here, and gives an indication of where the doubts about growth are coming from. After all, most of the surprisingly strong growth in the first quarter was due to net exports. In practice, imports have fallen more sharply than exports, which is not necessarily a sign of strength in the UK economy. The underlying growth trend is therefore likely to be lower.”