UK High Inflation Figures Add More Pressure Onto the BoE
The Bank of England’s (BoE) “Super Thursday” will draw attention later this week as the anticipated interest rate decision may influence the currency pairs based on the British pound. If the BoE raises borrowing costs once again, it would be the 13th time in a row.
UK inflation came in at 8.7% in May on an annualised basis, unchanged from the previous month. Commenting on inflation figures, PricewaterhouseCoopers (PwC) analysts said: “Higher inflation means that the squeeze on household incomes isn’t over yet, despite strong wage growth. It also cements a rate hike from the Bank of England tomorrow and means an August rate hike is now more likely than not.”
On Thursday, the Swiss National Bank (SNB) will have its board meeting and investors will be waiting for its announcement regarding its monetary policy. Although the Swiss economy doesn’t seem to share the problems of other economies in Europe, the SNB’s governor has vowed to control core inflation that is higher than the central bank’s target.
Bank of England Interest Rate Decision
On Thursday, the BoE’s Monetary Policy Committee (MPC) will reveal its interest rate decision. A Reuters poll conducted among economists on June 14th showed that everyone expected the UK’s central bank to proceed with one more 25 basis points rate hike in its upcoming meeting. Fifty-two out of sixty-four economists surveyed suggested that the Bank Rate will have peaked by end-August with the median forecast putting it at 5.00%.
A CNBC report quoting Goldman Sachs (GS) analysts said that “GS expects the MPC to retain its relatively dovish position given resilient growth, sticky wage pressures and high core inflation, and to continue being pushed into more 25 basis point hikes by stronger-than-expected data, eventually reaching a terminal rate of 5.25% with risks skewed upside.”
Analysts at ING wrote in a report published on June 16th that their base case is “a 25 basis-point rate hike, most likely backed by seven committee members, with two (Silvana Tenreyro and Swati Dhingra) voting for no change. A further 25bp hike in August is likely should the inflation data continue to come in hot.”
Swiss National Bank Interest Rate Decision
The SNB will be the second major European bank to announce its interest rate decision this week. Most market analysts expect a 25 basis points rate hike by the SNB’s governing board as inflationary pressures slow down. However, economists disagree over the expected rate peak, and whether the SNB would stop at 1.75% or raise up further to 2.0%. SNB's chairman of the governing board, Thomas Jordan, has expressed concern about the high core inflation figure recorded in the last few months, although Swiss inflation is in general much lower than the consumer prices growth rate in other European economies.
A Bank of America report said: “We think the SNB will deliver another 25bp hike in June, with a risk for 50bp...and, while still data dependent, this is probably the last hike in this cycle.”
UK Retail Sales in May
Just a day after the BoE’s interest rate announcement, the Office for National Statistics (ONS) will publish its May retail sales data. Financial analysts forecast a 2.6% drop on an annualised basis and a 0.2% fall on a month-to-month basis.
A British Retail Consortium (BRC) retail sales report revealed that sales slowed to the lowest level in six months, with three bank holidays in the same month failing to convince consumers to buy more.
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