Today's inflation figures isn't enough to spook investors from expecting a rate hike some time this year
Although UK inflation weakened in April, part of it could be attributed to the fall in air fares - which is a known effect when it comes to early Easter years. It's the same case for Eurozone inflation figures that I highlighted last month.
The softer print today triggered a lower probability pricing in August-dated SONIA - with chances of a hike then still seen as a somewhat coin flip. But the November-dated SONIA probability shows a roughly 70% chance of a rate hike - compared to the ~80% beforehand.
For inflation figures to really skew the odds of a rate hike, a clearer picture is needed - not one that is potentially clouded by seasonal factors and also has to be put together with wages data. But ultimately, it is all going to be about Q2 economic data points and whether or not there are sufficient signs of a recovery from the soft patch we saw in Q1, for the BOE.
As I've said before, the central bank may twist and turn with their words but at the end of the day, it's not going to matter if economic data doesn't back up the rhetoric.
We'll have retail sales data due tomorrow, which I don't expect to be overbearingly positive. And then on Friday we'll have the second reading of Q1 GDP figures. Those will be the two key data points left on the week.
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