MNI Gilt Week Ahead: Big week for the UK

• It’s a huge week for the UK, we have already received April activity data, the Bank of England meet and we will also receive labour market data on Tuesday and retail sales data on Friday. We will discuss the BOE meeting in more detail in our upcoming preview, to be published tomorrow. In the meantime, we note a further significant repricing of rate expectations since the US CPI print was released on Friday. The SONIA strip has moved up to 40 ticks lower since Thursday's close with the Mar-23 contract the biggest mover. Even Blues are down at least at least 21 ticks since Thursday's close. Markets price 35bp for Thursday (around a 40% probability of a 50bp hike) with 78bp by August and 191bp by year-end (5 meetings).
• We have already received UK April activity data that disappointed, coming in at -0.3%M/M (+0.1%M/M was expected). This was largely driven by a ramp down in Test and Trace activity, so is not quite as bad as the headline numbers would suggest but this also represented the first time since January 2021 that all the major components fell with construction and manufacturing both soft.
• Tomorrow’s labour market data will be more significant, with the PMI data hinting that although the labour market remains very tight, it might not be getting any tighter. However, there are still risks that wage growth moves higher – and the MPC will be watching this data very carefully. Retail sales data is notoriously volatile, but will still give us the best early indication of the state of the consumer in May.
• There is not too much on today's calendar other than the publication of the bill to scrap parts of the Northern Ireland protocol that is due to be published this afternoon. Ahead of this, Foreign Secretary Truss has spoken to European Commission VP Sefcovic. This follows comments from NI Secretary Brandon Lewis over the weekend that he was confident the changes would be lawful.

GiltWeekAhead20220613.pdf