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Market reaction now focusing on dovish risks

BOE
  • After an initial hawkish reaction, SONIA futures and gilts are now higher than pre-meeting.- In terms of terminal rate expectations for the BOE, markets are now pricing 40bp by June - down from 42bp immediately ahead of the announcement.
  • Possibly more focus coming here on the inflation forecasts which are quite a bit lower than analysts had expected ahead of the meeting. The 2-year CPI rate at constant rates is below 1%, but had been expected to be somewhere in the 1.4-1.7% range. Inflation falls further in year 3.
  • It will be interesting how future policy is described in the press conference.
  • There is no promise of future tightening here - it is needed is there is "evidence of more persistent pressures."
  • So theoretically if the inflation data / labour market tightness does not continue to surprise, this guidance could be consistent with the end of the cycle.
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