BoE 7-2 vote for rate hold expected; Further dampening of rate cut hopes due

This week's data deluge will go a long way towards clarifying the state of the UK economy. We expect that the jobs data and inflation report will confirm that the UK is in the middle of a stagflationary process, with inflation remaining far above Bank of England targets while the labour market continues to slow.

On the positive side, the sell off in the gilt market seems to have abated and yields have stabilised, though sentiment remains fragile and another Labour fiasco along the lines of its recent failure to deliver modest spending cuts would probably cause the uptrend in yields to resume.

Meanwhile, the Bank of England will keep rates unchanged on Thursday, as it continues to place greater emphasis on the inflation overshoot than the cooling in Britain’s jobs market. We are bracing for a 7-2 vote, and forward guidance that acts to dampen expectations for cuts during the remainder of the year.