If anything else, the data here today vindicates what markets have priced in going into the BOE policy decision tomorrow: One last rate hike for the BOE this week?
I outlined the reasons in the post above as to why markets have toned down their expectations for the BOE over the last one month. And with inflation falling off significantly more than anticipated in August, it builds a stronger case for not needing 6% rates - at least for now.
ONS notes that the main contributors of the lower readings are a fall in food and accommodation prices but we also saw a decline in services inflation, which is further good news to the economy and the BOE. This gives more flexibility to policymakers ahead of the decision tomorrow but does it really change the outlook?
I would say not so much. Traders have already just priced in one more rate hike for the BOE and not anything much more than that coming into today. So, if anything else, the inflation data just serves to vindicate that pricing and sentiment.
If inflation continues on this trajectory in the UK, this week might just be the last rate hike we see from the BOE during this cycle as they join the cohort of the Fed and ECB.
