The release of weaker-than-expected inflation data for June has seen the chances of an imminent rate hike diminish. Nonetheless, investors still see it as a distinct possibility before the end of the year. Following the marginal 5-3 MPC vote to keep rates on hold in June, Andy Haldane, usually one of the more dovish members of the Committee, revealed that he expected to back a hike later this year. That led to the market-implied probability of an increase in interest rates by December climbing to 57% before the downside surprise of June’s inflation figures saw it pared back. While we think last month’s fall in inflation will mark a dip as opposed to the start of a downwards trend, the risk of higher inflation proving persistent – hawks’ chief concern – looks limited. Wage growth remains subdued, the pound has stabilised and we think that any recovery in oil prices will be limited. As such, we continue to think that the MPC will hold off starting to normalise policy until next year.
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