UK economy 'remarkably resilient' – BoE hawkish pivot would 'be a surprise'

A robust monthly GDP report for July confirmed the broadly strong tone of recent economic news out of Britain, which remains remarkably resilient despite prevailing downside risks. The UK economy expanded by 0.4%, in part it seems due to the impact of AI spending - well above the zero growth consensus.

Gilt markets, meanwhile, stabilised last week following some reassuring rhetoric from Chancellor Healey, who once again voiced a commitment to the fiscal rules. The sell off in government bonds has been a global problem, so sterling has not suffered particularly as a result of the relentless rise in gilt yields.

This week is unusually packed. The monthly labour market data on Tuesday will be followed by the inflation report for August on Wednesday. Both data points will be available to MPC members prior to their rate decision on Thursday, but neither should change the decision to keep rates unchanged.

The key for the pound will be the number of hawkish dissenters as well as the forward guidance offered by the bank. We do not think that the MPC will be pressured into raising rates at all this year, so any hawkish pivot in the bank’s remarks this week would be a surprise to us.