BoE to deliver 7-2 vote to hold – Bailey unlikely to lean into hawkish rhetoric

We contend that economic data does not yet clear the bar for higher rates. Headline inflation fell to a 15-month low 2.6% in June, undershooting the bank's forecasts for three months running.

Wage growth is softening rather than accelerating, and the economy continues to shed jobs rather than add them - consistent with a labour market showing slack, not tightening. The latest retreat in oil prices means the bank's own forecasts may show inflation peaking closer to 3% than 4%, which we don't think is high enough to warrant undue panic.

That's not to say the MPC won't strike a hawkish note on Thursday. As always, the voting pattern among the committee will be key.

On balance, we think the vote will land at 7-2, as it was in June, though a wider 6-3 split cannot be entirely ruled out should Lombardelli join Pill and Greene in voting for a hike. But again, we don't think we've seen enough to shift the balance too much, particularly given signs of a marked separation between the hawks, who point to elevated services inflation, and the doves, who place greater emphasis on the cooling jobs market.

Governor Bailey's remarks will also be scrutinised - this is a "Super Thursday" announcement after all. We expect his guidance to be deliberately non-committal. He will stress that the bank is continuing to monitor the situation in the Middle East and stands ready to act if required, but he's unlikely to lean into hawkish language for fear of overinflating market pricing for hikes.

The updated forecasts could show a modest upward revision to the growth view and a mild downgrade to inflation, but we'd urge caution in reading too much into the latter given how fluid the Middle East situation remains.