By Stefano Rebaudo
(Reuters) – Sterling rose after British data showed underlying price pressures remained strong, meaning the Bank of England is likely to wait longer before cutting rates.
British inflation returned to its 2% target in May for the first time in almost three years, while closely watched services prices rose 5.7%.
Markets were pricing in a 30% chance of a first BoE cut in August, compared to around 50% before the data, while expecting monetary easing of 44 basis points in 2024, compared to almost 50 basis points before the data.
The euro fell 0.20% to 84.32 pence against the pound, which rose 0.16% to $1.2730. It was flat just before the inflation data was released.
“For now, we are sticking to our forecast that the bank will first cut rates from 5.25% in August, although that is dependent on better news on CPI inflation in the services sector and wage growth in the coming months,” says Ruth Gregory , Deputy Chief Economist. in Capital Economics.
Data last week showed UK wages rising faster than forecast.
“The big question is whether the bank sticks to previous guidance and prepares the market for a rate cut cycle to kick off in August,” said Jamie Dutta, market analyst at Vantage, after predicting the BoE would not make a rate decision on Thursday. .
“Keeping the policy restrictive for ‘an extended period’ is the key phrase to watch.”
“Before we reach that point, there is of course the general election on July 4, which could rule out any significant changes to future guidance at this meeting,” he added. Analysts expected the BoE to ease monetary policy in August, according to all but two of the 65 economists polled by Reuters last week. Most of them predict at least one more cut this year, despite persistently high wage and services inflation.
