Benign UK inflation data reduces chance of June rate hike

What the desk is arguing

The latest UK inflation data suggest a temporary dip rather than the onset of deflation, which could wield significant influence on the Bank of England's monetary policy stance. According to ing-think, April’s inflation rate dropped below 3%, suggesting that last year's food price spike hasn't cascaded into wider inflationary trends across the economic spectrum.

As evidence builds that inflation might remain anchored, the need for aggressive rate hikes appears less pressing. Recent job numbers echo this sentiment, prompting the desk to reassess expectations surrounding immediate rate adjustments and highlight the potential for a more cautious BoE stance moving forward.

Where it sits in our coverage

Our internal consensus currently has a target for GBP/USD at 1.075, with a range from 1.04 to 1.12. Notable firms include: - jpmorgan: 1.10, for Mar26 - bofa: 1.04, for Mar26

This view aligns with the consensus on maintaining a more dovish outlook on BoE policy, particularly against the backdrop of the incoming data, which positions us closer to the upper bound of the projections.

How other firms see it

Several firms are aligned with this viewpoint, suggesting a muted approach to rate hikes. Specifically, jpmorgan and barclays maintain similar stances on the BoE's eventual trajectory.

Conversely, some firms, like bofa, express a more dovish outlook, predicting a necessary rate cut if inflation does not trend upwards as anticipated. Watch GBP/USD closely, as its trajectory will reflect broader market sentiment surrounding the BoE's rate path, especially as it contrasts with the ECB's positioning.