Limited H224 BoE Cut Pricing Potentially Vulnerable

Market focus has evolved since the turn of the year, with an eye on how long the BoE policy rate is kept at current levels as opposed to imminent rate cuts being priced, in line with the central thought process at the Bank.

• We also believe that positioning is likely a lot cleaner after this week’s UK data-inspired volatility.
• Positioning for a delayed, albeit swift start to BoE cuts is yet to be materially priced into the Aug ‘24/Dec ’24 BoE-dated OIS spread, which seems like an attractive play.
• Such a position would likely also benefit from an expedited rate cutting cycle given the expected betas of each leg.
• A single 25bp cut is priced through Aug ’24, with 40bp of cuts then priced across the Sep through Dec MPCs i.e. less than 2x 25bp cuts are priced over the latter 3 meetings.
• That ~65bp of ’24 cuts compares to pricing that was closer to 60bp post-labour market data, with the latter representing the shallowest cutting cycle priced this year.
• Such levels could allow those looking for a more dovish BoE response to exploit some of the recent repricing, exposing themselves to the potential for the BoE to deploy a relatively swift cutting cycle during H224.