Higher oil prices are expected to cause a rebound in UK inflation, adding to expectations that the Bank of England will carry out the rate hike it delayed in May in the coming months.
Consumer price index inflation will bounce back in May to a yearly rate of 2.6 per cent in data published on Wednesday, according to consensus forecasts collected by S&P Global Market Intelligence. Inflation fell to 2.4 per cent in April, the Office for National Statistics found.
While policymakers tend to look through the effects of oil prices in headline inflation data, the Bank will be looking for signs to back up its analysis that inflationary pressures are rising on the domestic front as well.
Bank of England deputy governor Sir Dave Ramsden last week said that he expects Britons pay packets to pick up, paving the way for the monetary policy committee to raise interest rates after being forced to delay a clearly signalled hike ahead of its May meeting.
The Banks efforts to raise interest rates come amid a move across the main Western central banks to tighten monetary policy, with monetary policy meetings due this week at both the US Federal Reserve and the European Central Bank (ECB).
The Fed, which will announce its latest interest rates decision on Wednesday, is almost certain to raise its target range for the federal funds rate by 0.25 percentage points. Market options prices today point to a 91.3 per cent probability of a hike, according to exchanges giant CME Group.
Investors will focus on the likelihood of further interest rate moves in the current year, with economists split as to whether there will be one or two increases before the end of 2018.
The ECB, meanwhile, will discuss the end of its quantitative easing bond purchases at its meeting on Thursday, according to its chief economist, Peter Praet. The central bank is currently scheduled to buy €30bn in mostly government bonds per month until September.