UK: Little signs of wage growth could trigger a dovish BoE reality check - ING

In view of Viraj Patel, Research Analyst at ING, this week’s UK labour market report (Wed) is likely to come as a disappointment to MPC hawks banking on the Phillips Curve – that is low unemployment rates translating into higher labour costs – to come good.

Key Quotes

“While job gains are likely to remain resilient (ING: +127k), a slowdown in headline wage growth to 1.8% will add little macro support to calls for a Nov BoE rate hike. With markets still pricing in around a 45% chance of a rate hike later this year, we continue to believe that a dovish re-pricing – and a move lower in short-term UK rates – remains the key downside risk to GBP in the near-term.”

“BoE watchers will also be noting Deputy Governor Ben Broadbent’s speech this week (Tue); we suspect his remarks will be more representative of the ‘core’ MPC views, which seem aligned to the idea that a realistic rate hike debate is more of a 2018 story. GBP/$ could test the 1.2750/80 area if markets were to also shift to this thinking this week.”