Insights 
VT 
The Bank of England policymaker noted that the disinflation process has continued. All members of the Monetary Policy Committee agree on this, with one seeing greater downside risks.
Supply chain data points more clearly to disinflation compared to complex wage data. Core inflation had stalled around 3.2% and has now increased to 3.8%.
Core Inflation Trends
What we’ve seen so far suggests that the slow decline in inflation is still underway, though the path is turning out to be somewhat less smooth than previously anticipated. Acknowledging that core inflation has ticked up from around 3.2% to 3.8% tells us that domestic price pressures may not yet be easing in a consistent manner. While wages remain difficult to interpret due to distortions and lags, supply chain improvements have fed more visibly into softer goods prices—an early sign of easing cost pressures in certain parts of the economy.
One member of the Committee appears more attuned to the possibility that inflation may surprise to the downside, hinting at greater space for easing later in the year. That view stands in contrast to a broader consensus within the Committee, though all agree the direction of travel in prices is still downward.
Given this split in reading the risks, and the recent increase in core inflation, we should expect future policy decisions to take a more staggered approach. It’s not yet time to place large directional positions. Instead, keeping exposures tilted toward short-term interest rate volatility makes more sense than expressing outright directional bets on rates. This holds especially true given the next few data prints, particularly wage growth, will weigh heavily on the market repricing of any forward policy moves.
Market Reactions and Policy Flexibility
Price action in short sterling futures suggests lingering doubts over when the first rate cut may materialise. The most recent repricing shows the market stepping back slightly from its earlier optimism. We’ve also noted upward pressure on near-term implied vols; traders are starting to hedge against a slower policy reaction, which aligns with what we’re seeing in the inflation data.
Some risks still hinge on global dynamics—particularly in energy and trade—but the domestic picture remains our primary focus. Key inflation drivers are now services-heavy, meaning wage data, although noisy, will continue to draw outsized attention. Policymakers appear cautious while keeping the option open for shifts in policy depending on how clean the next few data prints are.
For now, we’re staying active in the belly of the curve, favouring structures that benefit from a steeper front-end. This reflects our view that the Bank will avoid aggressive action until more solid disinflation evidence accumulates. Policy is not on a pre-set course. The market environment, if anything, calls for agility.
