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UK: UK markets pricing in moves from Jackson Hole

UK
  • UK markets have moved to price in moves from Jackson Hole on Tuesday trading – with a combination of spillover effects from Powell’s speech which have impacted global markets as well as Bailey’s speech reducing pricing for cuts across UK curves. Bailey said “Policy setting will need to remain restrictive for sufficiently long until the risks to inflation remaining sustainably around the 2% target in the medium term have dissipated further. The course will therefore be a steady one.” The reference to a “steady” course seems to downplay expectations of sequential cuts. He also said that “"while second round effects may be smaller that does not tell us how much smaller and less persistent they will eventually end up being than in the past. On this basis, at the moment I put more weight on the first case – self-correction - but some smaller weight on each of the other two.”
  • We think that the base case of the central MPC members at present is to cut broadly at a quarterly pace (although we don’t think they really have a strong conviction surrounding how many cuts will ultimately be appropriate at this stage). UK markets are still pricing in more than this. At the time of writing markets are pricing around an 18% probability of a September cut, cumulatively 26bp by November, 59bp by February 2025 and 98bp by Jun 2025 – around 9bp less than pre-Jackson Hole levels.
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