MPC minority report

• ‘Super Thursday’ to produce MPC minutes and Inflation Report alongside the rate decision

• A vocal minority for a rate hike could bring forward Bank Rate market expectations

• Sustained strength in US labour market data needed to keep September FOMC in play

Reform to BoE communications to produce a barrage of information on Thursday. Following the FOMC’s July meeting which left open the prospect of a September tightening from the Federal Reserve, the BoE’s revamped policy process is set to coincide with re-emerging fissures in the UK monetary policy debate. Thursday’s noon ‘Big Bang’ of the August policy decision, MPC minutes - including the voting record - and the Inflation Report will compress the previous drip-feed of information into the market. The immediate focus is likely to be on the vote, which seems likely to show 3 members voting for a 25bp hike in Bank Rate. But with the potential for as many as 4 members preferring an immediate upward move, the market reaction could run against the more balanced narrative presented in the Inflation Report, released at the same time, and Carney’s press conference at 12:45pm.

Inflation Report ‘collective view’ likely to prove more durable. The Inflation Report press conference - this time set to be attended solely by MPC members voting for no change - would furnish Carney with an opportunity to dial back any excessive market reaction in the aftermath of the noon announcement. But the need for any such moderation should be limited by the message imparted by the Inflation Report projections, where the bulk of developments since the May Report should weigh on the inflation profile. Indeed, relative to the May Report, the steeper yield curve used for the interest rate conditioning assumption, lower oil and equity prices, alongside the stronger exchange rate - by around 3% on an effective basis - together should push down the first two years of the projection. Should inflation at the 3-year horizon be little changed, as we expect, it would suggest votes for a hike merely reflect the shift in the balance of risks for some members, notably reduced anxieties about low headline inflation, and lower Greek event risk. Still, a centrist core of Carney and other internals seems unlikely to be swayed by the arguments of the minority for some time yet.

Domestic data of limited interest. Upcoming UK data should provide further colour on activity growth in Q2 going into Q3, but in isolation are not pivotal to the UK rate debate. Absent other offsets, soft industrial production data (Tue) could prompt a downward revision to the first estimate of UK GDP data for Q2, currently showing 0.7% growth. Domestic manufacturing and services PMIs (Mon & Wed), will provide the first gauge of growth at the outset of Q3.

Strong US employment report key to keep September Fed tightening in play. With Greek event risk receding pending ongoing negotiations around a third bailout package and some semblance of stability returning to Chinese equity markets, July’s US payrolls (Fri) will be of most interest to global markets. With ’some further improvement’ indicated by the Fed as a pre-requisite for a hike, solid reports - at the very least, when taken in the round with average earnings growth following the weakness seen in the Q2 employment cost index - would be needed both for July and August. We look for a 230k rise in payrolls and the unemployment rate holding at 5.3% in July. Meanwhile, Monday’s PCE deflator data for June are unlikely to add to the Fed’s need for ‘reasonable confidence’ that inflation is returning to its target. The ‘core’ rate is expected to hold at 1.2% in June, with Q2 overall already seen in last week’s Q2 GDP data.

International activity developments and central banks also in focus. International PMIs - including for China, final Eurozone prints and ISM surveys for the US (Mon & Wed) will also be scrutinised for activity trends. With anxieties around the strength of growth in China of particular relevance for commodity prices - and by implication, for the recovery of global headline inflation rates - Chinese PMI prints over the weekend will be closely watched. While weak commodity prices continue to weigh on Australian terms of trade, the RBA’s rate decision (Tue) sees only a small chance of further easing. Likewise, no change in Japanese policy is expected at Friday’s BoJ meeting.