The Bank of England is 'caught between a rock and a hard place' as it prepares for a key monetary policy decision.
Adding to policymakers' collective headache, labor market data last week came in far stronger than expected. Unemployment defied expectations to fall back to 3.8% while the inactivity rate also fell by 0.4 percentage points.
In terms of economic activity, May PMIs moderated slightly below consensus but remained in expansionary territory, and U.K. gross domestic product unexpectedly contracted by 0.3% month-on-month in March before rebounding partially with 0.2% growth in April.
"We look for the MPC to retain its modal assessment that underlying inflation pressures will cool as headline inflation declines but acknowledge the firmer recent data and note that risks to the inflation outlook remain skewed significantly to the upside. We also expect the MPC to keep its loose forward guidance unchanged," Stehn added.
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