Higher for Longer Meets Weaker for Longer

1. The hold that was not unanimous

The Bank of England has held Bank Rate at 3.75% for a fourth month running, but the vote was not clean: two of the nine Monetary Policy Committee members wanted to raise to 4%, outvoted by a cautious majority. Consumer price inflation was 2.8% in May, and with Gulf energy feeding through, the Bank now expects it a little under 3% in the third quarter and a little over 3.25% by the fourth.

That is the opposite of the path the Bank sketched before the Middle East flared up, when it saw inflation settling near 2% for the rest of the year. The forecast has been rewritten by events, not by policy.

The read: the Bank is wedged between a price gauge drifting away from target and an economy that can ill afford higher rates. A split vote is the honest expression of a genuinely hard call.

2. The economy quietly rolls over

Beneath the inflation noise, the activity data turned. The composite PMI, a timely gauge of private-sector output, slipped to 49.4, its lowest in 14 months and below the 50 line that separates expansion from contraction. Job vacancies fell to a five-year low, and the number of young people not in education, employment or training passed one million for the first time in 13 years.

The first quarter had looked solid, with GDP up 0.6% and output 0.9% higher than a year earlier. The forward-looking gauges now point the other way, and it is those that policy has to respect.

The read: the gap between still growing and no longer growing is exactly where policy mistakes get made. The lagging data still looks fine. The leading data has already turned.

3. The July 30 problem

The next rate decision and the quarterly Monetary Policy Report both land on July 30. A committee already carrying live dissents in favour of a hike, staring at a softening economy and an inflation forecast above 3%, has one of the least enviable jobs in the developed world right now.

Sterling and gilts have started to trade the disagreement rather than the decision. When the split itself is the story, forward guidance loses most of its power.

The read: the market will price the argument inside the committee, not the polite consensus in the statement. Expect the volatility to sit around the vote count, not the headline rate.

The week ahead

• Labour market data: with vacancies at a five-year low, the wage and unemployment prints matter more than usual for the July 30 call.
• Monthly GDP: the first read on whether the PMI weakness is already showing up in output.
• July 30 MPC and Monetary Policy Report: the decision, the vote split, and the Bank's new forecasts all arrive together. The single most important UK date of the summer.