By Matthew Ryan, Head of Market Strategy Ebury International Payments Company

As the proverb says, officials are currently “between the hammer and the acne” (in a difficult position). The Commission’s strict monetary policy advocates will argue that inflationary pressures remain increased and that further loosening of the policy would endanger the bank’s pursuit of achieving the famous 2% goal of inflation.

Inflation in the UK is currently moving in wrong directionwith the main measure of increasing price consumer to launch a high fifteen -month -old in April (3.5%). We are also seeing increasing upward risks to future inflation, mainly due to the increase in household energy accounts, high wages growth and the recent increase in global oil prices caused by tensions in the Middle East.

On the other hand, the advocates of loose monetary policy They will undoubtedly refute these arguments by highlighting signs of cooling in the British labor market and the first indications of slowing economic activity. The April/May Labor Market Exhibition has marked some risk bells. Unemployment and unemployment benefits are increased, vacant jobs have fallen to a low four -year -old and wage increases slows down, although high levels. Our biggest concern, however, is the worrying fall of recorded employees, in a shocking number of 109,000 employees only in May – the largest monthly fall out of the pandemic since 2014 records began.

Then there is the issue of economic activity for examination. Britain’s economy developed by a powerful 0.7% in the first quarter of the year, but a sharp deceleration in the second quarter seems almost inevitable, especially after the frustrating April GDP decline (-0.3% mom). Officials are undoubtedly aware that we have not yet seen the complete result of the tax raid on April or Trump’s duties in the economy, all in the midst of the spectrum of further tax increases in the fall. While we must not lose out of our eyes that the only goal of the Bank of England (BOE) is to achieve price stability, an economic downturn would clearly create risks to this goal.

This places the bank of England in a somewhat difficult position at this week’s meetingand we will be surprised if the MPC votes unanimously in favor of non -change. We suspect that both DHINGRA and Taylor, who have chosen a large decline in May, will again vote in favor of an immediate reduction, probably by 25 basis points, although the 50 basis points are not excluded. The markets expect the other seven members to be in favor of non -change, but we will not be overwhelmed to see at least one additional vote in favor of a relaxed policy.

In addition to the vote, the market will focus on the expectations that the Bank of England will form for the future. For some time now, the Bank of England has stressed that further “reductions in the basic interest rate” would be both “gradual and careful”. Given the latest increase in inflation and the prevalence of the aforementioned risks to consumer prices, mainly from the conflict in the Middle East, we believe that BOE will maintain this phraseology at present. However, there is an increasing risk that Hawkish is abandoned on Thursday, which will not only establish the possibility of yet another reduction by September at the latest, but will also substantially increase the chance of reducing interest rates at the next MPC meeting.

At present, we remain in our prediction for just two more reductions in the basic interest rate from now until the end of the year, possibly in August and November, when the latter are released “Monetary policy reports»(Monetary Policy Reports). We do not believe that the MPC will consider the idea of ​​reducing its interest rates more aggressively, and we believe that any decline in the pound due to Thursday’s forthcoming announcement will be limited. Taking this, a formal abandonment of the rhetoric “gradually and carefully” would probably cause some pound pressure on the pound.