Stagflationary gloom' in UK as BoE signals growth concerns

The run of dismal UK data that started two weeks ago continued last week. Inflation came out higher than expected, while retail sales collapsed by 2.7% month-on-month in May, far worse than expected.

This run of soft data adds to the stagflationary gloom, and comes hot off the heels of the worst month of job losses since the pandemic last month.

The Bank of England kept rates unchanged, as expected, last week, but the dovish vote (three dissenters were in favour of cutting rates immediately) suggests that the MPC is becoming increasingly concerned with the growth outlook and the performance of Britain’s labour market.

The forward guidance on rates was, however, kept unchanged, with officials again saying that future cuts would be both “gradual and careful”. While this ensures that an August cut is not entirely set in stone, swap markets are still largely pricing in another rate reduction at the next meeting and a total of two further cuts by year-end.