DAVY VIEW

July’s inflation increased to 2.9%, matching the latest consensus. While expected increases to energy prices were the driving factor, the results were still mildly hawkish in our view. For the Bank of England (BoE), the details will provoke debate for both sides of the dove-hawk divide. In the context of yesterday’s dovish labour market data, which still showed little or no evidence of second-round effects from higher energy prices, no change to Bank Rate this year looks likely. We expect a return of undershooting inflation will help to reduce market pressure to hike rates by year-end.