BoE in wait-and-see mode in June

Taking a brief look at the main data releases since the last MPC meeting s , we could come to the conclusion that the BoE w ould start cutting interest rates next week: i/ the UK labour market continued to cool with the jobless rate rising to 4.4% in the three months to April, ii/ UK inflation declined further with headline inflation eas ing to 2.3% in April (from 3.2% in March) and core inflation edg ing lower to 3.9% after 4.2% , and finally iii/ the UK economy slowed to a halt in April as bad weather undermined consumer spending. Yet, the BoE will take a wait and see stance in June as services inflation remains elevated (5.9% in April after 6%) and pay growth remains sticky (unchanged at 5.9% for earnings incl. bonuses). While services inflation is set to ease in May (data published next Wednesday, a day before the BoE ’s decision) as indicated by the survey of UK services companies and pay growth will gradually edge lower in line with a recent softening of the labour market (employment has fallen for four months in a row since the beginning of 2024) , t he BoE will prefer to wait to become more confident that “inflation persistence” continues to wane as underlined by the external member Megan Greene mid-May . In a more dovish tone, t he BoE chief economist Huw Pill pointed to the possibility of a summer rate cut but cautioned that there was “still some work to do” to reduce domestic prices pressure s in the UK. Finally, the announcement that general election w ould take place as soon as on July 4 has lowered the chances of any monetary policy change this month. We expect that the BoE will cut interest rates by 25bps three times this year (August, September, and November).