The ONS has just released its December retail sales report, which showed a sharper-than-expected drop in retail activity. Sales volumes fell by 3.7%m/m to register their most significant monthly decline since last January, led primarily by a 7.1% monthly dip in non-store sales, which some retailers attributed to the rapid spread of the Omicron variant. Sales at food stores were also down, albeit by much less (-1.0% m/m).
Notwithstanding these softer UK data prints, financial markets continue to attach a very high probability to the Bank of England delivering a second-successive increase in interest rates at its next meeting in just under two weeks.
The near certainty assigned to a quarter-point increase in Bank Rate by financial markets has followed several strong UK data releases since the start of the year, including the December inflation report, which saw headline CPI rise to a nearly 30-year high.
Outside of Bank of England Governor Andrew Bailey and Deputy Governor Cunliffe earlier this week, there has been a noticeable absence of comments from the Monetary Policy Committee (MPC) members since the December meeting, which has meant the move higher in market expectations has continued unopposed.
However, today’s speech by external MPC member Catherine Mann on the UK economy and the outlook for monetary policy should provide markets with some food for thought. While Mann is seen as less hawkish than some of her colleagues, as she wasn’t calling for an increase in interest rates as early as Saunders and Ramsden last year, he is also not one of the most dovish either, given that she supported the hike in December (as opposed to Tenreyro).
While her comments may do little to alter market expectations for the February meeting, they may provide some indication over how much policy tightening centrists view as appropriate, particularly with markets now pricing in UK Bank Rate at 1.25% by the end of the year.