Moving past zero inflation in UK, but still a long way from 2%

GBP rallied strongly against the USD last week despite a set of BoE MPC Minutes that were, at the margin, more dovish. While the MPC showed optimism on the domestic outlook, they were concerned about recent global developments and the reference that "for some members the decision was finely balanced" was not present. 

BoE still remains uncomfortable with persistent GBP strength and remain bearish GBP. If the exchange rate does not continue to adjust lower, the market may price even further delays to BoE tightening.

This week CPI inflation (Tuesday) is expected to show a positive print of 0.1% y/y, or 0.3% m/m (consensus: 0.0% y/y and 0.2% m/m) in August, following a reading of 0.1% y/y in July, but remain a long way from the BoE's 2% target. Weaknesses are likely to come from food and transport, the latter driven by falling oil prices and calendar effects. The July unemployment report (Wednesday) is likely to show the unemployment rate remained at 5.6% as job creation continues to slow (consensus: 5.6%). Earnings should pick up slightly to 2.7% 3m/y (consensus: 2.5% 3m/y), as core earnings strengthen further to 2.9% 3m/y after 2.8% 3m/y in the previous month (consensus: 2.9% 3m/y). In line with employment surveys, the claimant count for August is expected to decrease only a marginal 2.5k (consensus: -5.0k). Retail sales (Thursday) should increase 0.3% m/m, slightly slower than a month earlier and in line with the consensus forecast.