A surprisingly close 5-4 vote to hold rates reveals a deep split at the Bank of England. Governor Bailey is now the pivotal vote, and his stated data dependency and focus on downside economic risks will determine the timing of future cuts.
Norge Bank's forecast includes an implicit easing bias, but strong demand, persistent inflation, and fiscal easing make actual rate cuts improbable. The market is currently overpricing the likelihood of the central bank delivering these cuts.
UK markets have strongly priced in a specific budget result: significant income tax hikes and a major rebuild of fiscal headroom. This creates a risk that any deviation or a less aggressive fiscal consolidation could surprise investors and cause curve steepening.
Internal Bank of England models now indicate its policy stance might have shifted to neutral or even slightly accommodative. This internal uncertainty about the true restrictiveness of rates could limit how much further easing the UK market can price in.