Synopsis:

MUFG emphasizes that the upcoming UK CPI and labour market reports will be crucial in determining whether the Bank of England (BoE) will begin cutting rates as early as next month. The rate market is currently pricing in around 13bps of cuts by the August MPC meeting.

Key Points:

• Rate Cut Prospects: The BoE rate market views it as a close call whether the BoE will cut rates next month. Three of the seven MPC members who voted to keep rates on hold in June need to change their minds for a cut to be delivered.
• MPC Members' Decision: Some of the seven members who voted to keep rates on hold in June already considered it a close decision. Even if Chief Economist Pill is unlikely to change his vote, it does not rule out a rate cut, as he could be in the minority.
• Crucial Data Releases: This week's UK CPI report for June (Wednesday) and labour market report (Thursday) are key events that could influence the MPC members' decision.
• Inflation and Labour Market: The BoE will need further evidence of slowing services inflation and/or labour market weakness to gain the confidence needed to vote for a rate cut in August.

Conclusion:

MUFG highlights the significance of this week's UK CPI and labour market reports in shaping the BoE's rate cut decision for August. With the rate market already pricing in potential cuts, the data releases will be critical in providing the necessary evidence to sway enough MPC members towards supporting a rate cut. The pound's movement this week will be closely tied to these economic indicators and their implications for BoE policy.