BoE Holds Fire as Market Pricing Surpasses Expectations
The Bank of England (BoE) has decided to keep its interest rate unchanged amid aggressive market pricing, according to FXStreet. The decision is not surprising given Governor Bailey's stance that the current market expectations are driven by a large risk premium.
Headline CPI inflation rose to 2.9% in July, mainly due to Ofgem's energy price cap. However, core inflation has been flat at 2.6% for three consecutive months, indicating no significant signs of businesses changing their pricing dynamics in response to higher costs.
Growth surprises continued in July with a 0.4% increase in GDP driven by a stronger service sector. The labour market report released in August showed moderate cooling, with employment growth being negative but not alarming, and wage growth trending lower while unemployment remained stable at just below 5%.
Market expectations of a rate hike are significant, with over 100 basis points priced in for the BoE. However, FXStreet believes that the balance of risk is tilted towards a less hawkish stance than expected, which could leave some upside risk for EUR/GBP.