UK: Pressure off the BoE for now – Deutsche Bank

Jack Di-Lizia, Strategist at Deutsche Bank, suggests that more modest-than-expected rises in last week’s inflation and wage prints help take some pressure off the MPC for now, justifying the market’s more dovish repricing of near term BoE meeting dates

Key Quotes

“At the same time, underlying drivers of price pressures in the UK remain strong, with forward indicators pointing to continued price acceleration, which should in turn help support pay growth.”

“In sum, the likelihood of a more hawkish lean in the near term has reduced, with the MPC’s set of judgments from the February IR passing their first test from the data.”

“From a trade perspective, we therefore see less potential for near term meeting dates to cheapen, and exit the short Nov-17 MPC.”

“However, the flattening of the money market curve further out is harder to reconcile with expectations that prices will remain above target throughout the horizon.  A repricing of the current pace of hikes would support a steepening of the money market curve from the 1Y1Y point in particular and we recommend steepeners in 1Y1Y-3Y1Y Sonia.”

“We maintain the short 5Y ASW where valuations remain historically rich relative to upcoming supply/demand dynamics and the short 30Y gilts, which despite recent steepening pressure sees room for additional cheapening.”