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All Eyes on Westminster and Whitehall Ahead of PRB Reports

Expected PRB reports put all eyes on Westminster and Whitehall, US inflation in focus, and Reserve Bank of New Zealand hold interest rates.

The prime minister Rishi Sunak has stated that “no final decision has been made” on the government’s position on public sector pay reviews, which are set to be released later this week. Within the next few weeks, the government will have to reach a decision on whether to accept the recommendations of the Pay Review Bodies (PRB). However, there are reports that division exists within the cabinet over whether the recommendations of the PRBs will be accepted with the Times writing that five ministers are lobbying Sunak to agree to such reviews. Meanwhile the Financial Times are reporting that Jeremy Hunt is ordering ministers to find some £2bn in savings to try to fund a 6% public sector pay rise this year, ahead of the release of the reports.

Currently around 45% of those in the public sector (including the armed forces, the police, teachers, the Senior Civil Service, dentists and the NHS) have their pay decided by Government Ministers and these are based on the recommendation of eight PRBs. These PRB are comprised of economists and members of both the private and public sector who are assigned by government departments.

On Monday evening, Jeremy Hunt outlined to his Mansion House audience that pay rises must not be funded by additional public sector borrowing or tax rises. Here, the chancellor stated that “delivering sound money is our number one focus. That means taking responsible decisions on public finances, including public sector pay, because more borrowing is itself inflationary”.

As we looked at yesterday, when assessing the disparity between private sector and public sector, today’s data revealed that private sector wages excluding bonuses rose 7.7% against the public sector’s 5.8%. For the private sector this marked the highest pace of growth on record outside of covid. Hunt and Bailey have repeatedly expressed concern over the prospect of a wage-price spiral as inflation continues to remain over four times the BoE’s target.

Thus, with the PRB reports due any day now, all eyes are on Whitehall and Westminster to see whether the government will accept the reviews, and how the government will seek to fund it.


Market Turns to US Inflation As DXY Falls to 2-Month Lows

At 1330 this afternoon all eyes will be on US inflation as the Federal Reserve gear up for their rate decision on 26 July. Chiefly, FOMC members will be looking at month-on-month core inflation where the general market consensus is expecting to see a 0.3% print, a 10bps decrease from last month’s figure.

Meanwhile, headline inflation is expected to come in at 3.1% as energy prices continue to subside and pressure on food price inflation eases. As we looked at on Monday the FAO World Food Price Index fell to its lowest level since April 2021, indicating that global food prices are now some 23.4% below the all-time peak seen last March as supply-side concerns rose due to the full-scale Russian invasion of Ukraine.

With inflation figures out later today, markets are considering the Fed’s next move. The release of the Fed’s minutes from June’s meeting underlined how policy makers foresee further rate hikes down the line with the market pricing in around a 90% chance of a 25bps hike on the 26th. Given that the Fed previously suggested that the decision to pause in June had been unanimous, some economists considered the minutes as surprising given that it indicated that some in fact favoured a 25bps hike, again highlighting the division within the Fed.

With markets weighing on a further fall in inflation in the US, the DXY has fallen to its lowest level in two months as investors consider whether the Fed may soon be at the end of their tightening cycle.


This morning, the Reserve Bank of New Zealand have decided to hold their interest rates, with the official cash rate being maintained at 5.5%. This follows the RBNZ’s tightening cycle which has seen 525bps of cumulative hikes since October 2021. Despite the break in tightening, Wellington reiterated that monetary policy would have to remain relatively tight in order to bring inflation back down to their 1-3% target. Q1 2023 figures indicates that inflation within NZ was at 6.7%, down from 7.2% in Q4 2022. With Wellington being another central bank to hold rates, all eyes are on the next round of central bank meeting’s as investors consider their next moves.

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