Market expectations for short-term interest rates have risen in the UK this week. The strong CPI print for May and the labour market data may push the BoE to follow the Fed, signalling earlier-than-expected rate hikes.
Payrolled employees in the UK jumped 197k in May. There was a revision to April’s data too, from +97k to +135k. The potential for a significant (>100k) increase in payrolled employment in May was flagged in last week’s commentary, although the dollar has jumped against the pound over the past two days on a more hawkish Fed dot plot.
The CBI has revised up its forecasts for the UK economy, and now predicts that output will regain its pre-pandemic level by the end of 2021, a full year earlier than it had previously expected.
The CPI for restaurants & hotels has already surpassed its pre-covid level and is back in-line with the trend prior to the pandemic.
These are two sectors that will benefit from pent-up demand. Spending will continue to shift from recreational goods to services. But prices could receive an additional lift from wage pressures. The UK is facing acute labour shortages, in part due to Brexit.
