BoE Preview: Fading momentum to keep BoE on hold this year - ING

"From a surprise dip in core inflation to a deterioration in consumer confidence, the latest data has not supported the Bank’s recent rate hike signals," argues James Smith, Economist at ING.

Key quotes:

"We’d expect some hawkish comments again this week, albeit with evidence of a disunited MPC. We think a rate hike this year is unlikely, and suspect the recent hawkish shift is mostly designed only to get markets considering the risk of tighter policy."

Wage growth

"Elevated uncertainty over Brexit & consumer demand, along with rising costs via higher import prices, mean firms have limited incentive to accelerate pay rises."

Consumer credit

"The rapid increase in unsecured lending (10% YoY) is a potential risk when raising rates, particularly given the already fragile consumer spending outlook."

"Various surveys still suggest uncertainty is holding back investment. A Brexit transition deal could start to offset this if agreed promptly and communicated clearly to the industry. Warm weather and a late Easter gave
retailers a temporary respite in the second quarter. But falling real wages means this is unlikely to last. Confidence is now as low as it was immediately after the Brexit vote."

"Headline CPI surprisingly fell in June, but the impact of the weaker pound will continue to feed through to prices. Expect CPI to stay close to 3% over the next 12 months, testing the patience of BoE hawks."