Last week, UK inflation climbed to an 18-month high due to surging food, transport, and hospitality prices, putting the Bank of England (BOE) under pressure to reconsider the pace of interest-rate cuts. Consumer prices rose 3.8% in July from a year earlier, up from 3.6% in June and the fastest pace since January 2024. The pickup was forecast by the BOE but exceeded the 3.7% that markets were expecting. Services inflation, a closely watched gauge of underlying price pressures, also climbed to 5%, above the BOE’s 4.9% forecast.
- We believe the UK 2s will likely hover around 4% until the inflation picture improves, which may take 6-9 months.
MM is neutral towards UK 2-year Gilts short-term
