MNI Gilt Week Ahead: Pricing 80bp off the peak

We are past the last of the big data releases ahead of next week’s MPC meeting. This week’s pricing has continued last week’s trend of pricing out hikes, with some violent moves following the inflation print on Wednesday and this morning’s trigger the weak PMIs across both the UK and Europe. There is now less than 35bp priced for the August meeting (down from a peak of around 48bp) and the terminal rate has fallen back to around 5.78% by February 2024 after hitting a high in excess of 6.60% by March 2024.

As we noted in our Inflation Review publication last week, we still lean towards a 50bp hike in August as the fundamental drivers seen at the June meeting – wage data and service inflation – still remain as concerning as they were at the June meeting. Other things continue to point to a softening economy in the medium-term – but we thought that would have been enough for the MPC to vote for a 25bp hike at the time and their reaction function seemed to change to focus more on the near-term upside risks rather than the medium-term moderating factors – so we expect the same again in August.

With PMIs out of the way, the main drivers for UK markets this week are likely to be external – with the Fed, ECB and to a lesser extent the BoJ all due to announce their latest policy decisions this week.

See the full document which also includes auction previews for the week ahead:

GiltWeekAhead20230724.pdf