GBP: Don’t buy the current market pricing of BoE – Nordea Markets

According to analysts at Nordea, everyone was caught by surprise when the FX effects led UK inflation much higher in 2017 and they think the same will be the case this spring just in a negative direction.

Key Quotes

“As the positive impulse on inflation from the weak sterling will abate very quickly during April to July.”

“Hence, even though it is likely that the Bank of England will deliver a rate hike in May, we don’t buy into the story of more hikes to come from the UK. Since early 2017 EUR/GBP has traded relatively correlated to the steepness of the GBP FRA Curve. If the outlook for both UK growth and inflation worsens during the spring, this should re-flatten the FRA curve and lead EUR/GBP higher again.”