UK PMI made a Bank of England August decision to divide

The Latest British Purchase Manager Index (PMI) perfectly summarizes the headache faced by the Bank of England now.

Higher payroll tax and thick increase in national wages in April put a more significant decline in the number of staffing, according to the latest PMI. It helped reduce the overall service index from 52.8 to 51.2 in July, and in line with what has been shown by the Boe’s own “decision maker” survey. Remember, official payroll numbers also consistently fall this year, although gradually gradually so far.

But PMI also suggested this policy change in maintaining pressure on price. We have seen instructions about this in CPI data, especially in food, where the inflation rate has increased and above what we have seen in the Euro zone. Pressure on staffing costs is also the possibility of explaining rigidity in hospitality inflation through spring.

Which of the following trends – higher inflation or lower recruitment – more important? This is not a new debate and far from being completed, establishing a bank of England meeting which divided August. We will not be surprised at all to see the three -way voting selection, similar to what we see in May. At that time, the officials narrowly chose to cut the 25BP tariff, but with two officials chose to have no change, and two further preferred to cut 50BP.

In our view, banks must care more about unpleasant job markets and what is implied for wage growth. We suspect that the growth of the private sector salary will move closer to 4% (from 5% now) as the year is running. Inflation services must come slightly lower throughout the second half of this year, although the concentration of annual price increases in April means that we may not see better news materially until the spring.

And that is the key – this is a story that develops gradually and shows that the main debate at Boe about inflation is not possible to completely resolve itself. It is not enough to convince the majority of officials to hold a public meeting behind a faster level of cutting.

Work data that is more worrying during the summer can change it. But for now, we think cutting the rate in August and November is the least resistance path, and the bar to move faster is still quite high.
Source: Ing