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PRESSURE'S OFF?

It is an economic data heavy week for the UK.

Figures on Tuesday showed that Britain's employers reined in their hiring and posted fewer job vacancies in April. And British inflation cooled by more than expected in April, according to data released earlier on Wednesday.

More economic insights are still to come, but so far the data is suggesting one thing to markets: the pressure on the Bank of England to hike interest rates might be easing.

Both the labour market and inflation data "questions the need for aggressive rate hikes," James Smith, developed markets economist, UK, and ING said in a note.

In fact, investors scaled back their bets on the central bank increasing borrowing costs following Wednesday's inflation data. Money markets were last pricing in two rate hikes from the BoE this year, with hardly any chance of a third. The likelihood of a rate hike at the BoE's June meeting meanwhile was at just 17.4%.

"Currently, we think the Bank is somewhere between zero and one hike(s)," ING's Smith said, noting that policymakers may be tempted to raise rates depending on how the situation in the Middle East develops, especially regarding energy flows.

However, inflation is likely to pick back up again - so "the question of interest rate hikes will remain pressing," Luke Bartholomew, deputy chief economist at Aberdeen said.

"But on balance, we think the weakness of the economy, and the labour market in particular, will stay the Bank’s hand, with rates remaining on hold even as inflation pressures remain elevated," he added.

(Sophie Kiderlin)

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