STIR: High hurdle for BoE hikes supports M7/M8 spread

The Republicans have selected Dallas, Texas as the location of the first-of-its-kind mid-term election convention. The convention will take place 9-10 September, and was trailed earlier in June by the Texas Attorney General and Republican US Senate hopeful, Ken Paxton. Unlike national conventions that take place before a presidential election, where the presidential candidate is formally selected and their vice presidential pick unveiled, there are no precedents for a mid-term convention, given the lack of a single candidate to rally behind or any formal balloting to take place. Instead, reports have suggested the event will be used to promote President Donald Trump in an effort to rouse the MAGA base. 

• Politico noted in late May that "The idea of a last-minute gathering months out from Election Day, while Republicans are struggling to hold onto their majority in Congress, is increasingly viewed as an unwelcome interruption from more granular, on-the-ground work in battleground states. [...] "This is not going to be your regular convention. This is going to be some mini infomercial,” [a GOP donor] added."
• It is likely in the host state Texas where the boost to the GOP may be most keenly felt. Hardline conservative Paxton is in a tight battle with Democrat candidate James Talarico, with some polls showing the two neck-and-neck. The loss of the Texas US Senate seat would be a major blow to GOP hopes of retaining the chamber. 

The Conference Board's June consumer survey showed a stabilization in expectations but a weaker assessment of current conditions. Consumer surveys have largely decoupled from actual "hard" consumption data but the details remain of note, including a softening of inflation expectations from the recent peak and the continued deterioration in labor market perceptions.

• The headline composite of 91.2 marked a large miss vs the 94.4 expected, though was actually a small uptick from the 90.6 in May after revisions are considered (had originally been reported at 93.1; now it's the post-January 2026 low).
• Expectations printed 74.4, up from 71.4 but the latter was a downward revision from the originally-reported 74.4 (i.e. an improvement but from a much weaker level). More alarming was the Present Situation reading of 116.4, representing a new post-February 2021 low, (prior 119.4 rev down from 121.2).
• There were various reasons for the pullback in confidence. On the current conditions side, the weakening in the perceived condition of the labor market (as we noted separately, the Labor Differential hit a new cycle low) was the major contributor, with current business conditions improving slightly vs May.
• Expectations are based on the short-term outlook for income, business, and labor market conditions, and appear to have been boosted by greater optimism following the pullback in energy prices in the month (net business conditions, employment, and income prospects improved). Indeed the Income Index (6-month expectations of increase minus decreases) rose to 7.6pp from 4.7pp, best since November 2024 and a notable pickup in contrast with broader metrics of slowing wage growth.
• On the inflation side, 1Y ahead median inflation expectations fell to the lowest since February when the Iran-US war broke out: at 5.0% (5.2% prior) they are down from the 5.3% peak in April albeit somewhat elevated vs prior months. This is consistent with other survey-based inflation expectation metrics showing a pullback from the recent energy price-induced spikes.

The DMO has announced it will be looking to sell GBP4bln of the 4.125% Mar-33 Gilt (ISIN: GB00BVP99780) at its auction next Tuesday, July 7.