“This morning’s UK inflation figures will likely be of some concern to policymakers on the MPC, with continued signs of inflation remaining sticky within the UK economy. Headline inflation remained at the BoE’s 2% target for the second straight month, marginally above the consensus forecast, though in line with the Bank’s own forecast. Nevertheless, the details of the inflation release show a continued lack of progress in stamping out persistent price pressures, with core CPI remaining unchanged at 3.5% YoY, while services CPI held steady at 5.7% YoY, the latter being some 0.6pp above the Bank’s expectations.

Naturally, the figures cast doubt on the MPC delivering the first 25bp cut of the cycle at the August meeting, particularly after more hawkish than expected rhetoric last week from Chief Economist Pill, and amid few signs that inflation persistence is abating, particularly as earnings pressures remain relatively intense, ahead of the latest jobs data due tomorrow. While June’s decision to hold rates steady was “finely balanced”, it seems unlikely that there will be enough in today’s data to convince a majority of MPC members that inflation is on track to sustainably return to the 2% target, likely seeing the ‘Old Lady’ err on the side of caution for now.

Further disinflationary progress will likely be required in order to push open the door to a rate cut, which now seems unlikely until September at the earliest. This, in turn, should help to underpin the pound, which continues to trade close to 12-month highs, particularly with the FOMC all-but-certain to kick-off their own easing cycle after the summer break, potentially opening something of a transatlantic policy divergence.”