The UK Decision Maker Panel survey for June showed one-year inflation expectations easing to 3.3% from 3.7% in May, while the three-year measure held at 2.9%, compared with 2.7% before the conflict. In contrast to the softer near-term inflation view, firms’ pricing intentions over the next year stayed at 4.0%. On a three-month smoothed basis, that measure edged up to 4.1%.
Expected wage growth also inched higher, rising to 3.5% in June from 3.4% in May. The figures point to persistent pricing and pay pressures even as shorter-term inflation expectations cool, and they imply that lower energy prices may take longer to pass through to corporate expectations. The data do not, on their own, indicate a change in the balance of views over a July hold at the Monetary Policy Committee.
Bank Of England Policy Outlook And Market Positioning
We believe the Bank of England is set to hold interest rates at its upcoming July meeting, as the Decision Maker Panel survey suggests underlying price pressures remain. This view is supported by the SONIA futures market, which is currently pricing in over an 80% probability of no change to the Bank Rate. Therefore, trades that profit from low near-term volatility, such as selling straddles on short-sterling options expiring after the July decision, look attractive.
This view is reinforced by official statistics, with the most recent CPI reading showing core inflation at a stubborn 3.8%. Similarly, wage growth, which the ONS reported at 4.0% for the three months to May, is still too high for the MPC’s comfort. These figures support the survey’s finding that businesses expect to keep raising wages and prices despite lower headline inflation.
Yield Curve And Currency Implications
Given this backdrop, we expect a ‘hawkish hold’ from the MPC in July, where they keep rates steady but signal a cautious stance for future meetings. This could cause the UK yield curve to steepen, making curve-steepener trades that bet on longer-term rates rising relative to short-term ones a viable strategy. Historically, central banks that signal a prolonged pause after a hiking cycle often see this type of yield curve reaction.
This policy divergence should also support the pound, particularly against currencies where central banks are more dovish. For instance, with the European Central Bank having already initiated its cutting cycle in June 2026, the rate differential favors holding sterling. We see value in using options to position for further GBP/EUR strength in the coming weeks.
