MUFG’s Head of Research Derek Halpenny notes that recent BoE testimony nudged front-end UK yields slightly higher and briefly supported the Pound, but policymakers signalled a finely balanced March decision. With Governor Bailey and Catherine Mann seen as potential swing voters and UK jobs data crucial, MUFG still expects a March cut, another in June, and sees scope for further GBP underperformance versus EUR/GBP and broader G10.

Finely balanced BoE but cuts still expected

"The scale of the moves in front-end yields feels about right to us – it’s understandable that the comments delivered indicate that the decision in March on the data available as of now is very finely balanced."

"Governor Bailey stated in parliament that services inflation “didn’t fall as much as hoped” and that it was a “genuinely open question” whether there is enough evidence of disinflation to warrant a cut in March."

"It does though emphasise the importance of the next jobs report, which will be released on the same day as the MPC decision (19th March)."

"If the data continues to show the gradual softening of labour market conditions that we have seen for many months now, then we believe a cut is likely."

"That remains our view and with inflation set to fall to target in May, another cut in June is very likely."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)