STIR: Fiscal Worry Persists, Just Over 45bp Of BoE Cuts Priced For '25

Hawkish pressure remains evident in GBP STIRs as fiscal headlines/worry continue to dominate.

• BoE-dated OIS prices ~45.5bp of cuts through year-end vs. December & January hawkish extremes of ~44bp.
• SONIA futures last 0.5-5.5 lower, yesterday’s low probed/pierced at the open, with fresh cycle lows registered across much of the strip. Contracts just off worst levels at typing.
• The Treasury attempted to reassure markets late on Wednesday, pointing to the non-negotiable nature of the UK’s fiscal rules, with the government looking to implement an “iron grip” on public finances.
• A subsequent BBG sources piece suggested that “Reeves will favour fresh cuts to public spending over tax hikes if soaring UK borrowing costs wipe out her fiscal headroom.”
• The piece also noted that “Reeves plans to reaffirm her fiscal rules in a speech in the coming weeks aimed at reassuring investors and businesses about her handling of the economy.”
• Elsewhere, there were some mixed details in a broadly downbeat KPMG-REC Report on Jobs but the main takeaway for us was the continued decline in permanent placements with the rate of decline the fastest since August 2023. The report notes that this was due to continued concerns regarding cost pressures from the Budget measures.
• The BoE’s DMP survey and comments from BoE’s Breeden are due later today.