Bank of England's next move divides economists as data paints a mixed picture

cnbc.com:

LONDON — Market expectations are split over the Bank of England's next monetary policy move on Wednesday, as policymakers near a tipping point in their fight against inflation.

As of Tuesday morning, the market was pricing around a 62% chance that the Monetary Policy Committee will opt for a 25 basis point hike to interest rates and take the main Bank rate to 5.25%, according to Refinitiv data.

The other 38% of market participants expect a second consecutive 50 basis point hike, after the central bank surprised markets with a bumper increase in June. U.K. inflation looks to be abating, but is still running considerably hotter than in other advanced economies and well above the Bank's 2% target.

Headline consumer price inflation slid to 7.9% in June from 8.7% in May, while core inflation — which excludes volatile energy, food, alcohol and tobacco prices — stayed sticky at an annualized 6.9%, but retreated from the 31-year high of 7.1% of May.

Data from the British Retail Consortium on Tuesday also showed annual shop price inflation cooled from 8.4% in June to 7.6% in July, and fell for the first time in two years in month-on-month terms, indicating that the country may be through the worst of its prolonged cost-of-living crisis.

The British economy has proven surprisingly resilient, despite a run of 13 consecutive rate hikes from the Bank of England. The U.K. GDP flatlined in the three months to the end of May, but Britain is no longer projected to fall into recession.

Goldman Sachs noted over the weekend that the MPC will be watching three indicators of inflationary persistence to determine how much additional monetary policy tightening is needed — slack in the labor market, wage growth and services inflation.

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