UK Economic Comment: BoE: On hold with hawkish vote but dovish tone

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UK Economic Comment: BoE: On hold with hawkish vote but dovish tone

scenario, the Bank expects more persistent inflation, with annual averages of 3.2% in

2026, 4.1% in 2027, and 2.8% in 2028 (Figure 1BoEinflationprojectionsundervariousscenarios). On the growth side, compared with

April’s Scenario B, stronger-than-expected growth in H1 led the Bank to raise its 2026

forecast by 0.3pp to 1.1%, while its 2027 and 2028 forecasts remained unchanged at

1.0% and 1.7%, respectively. In the milder scenario, the Bank expects slightly weaker

GDP growth of 1.0% in both 2026 and 2027, followed by 1.6% in 2028. In the adverse

scenario, the Bank expects GDP growth of 1.1% in 2026, 0.9% in 2027, and 1.6% in

2028 (Figure 2BoEGDPgrowthprojectionsundervariousscenarios).

Rates Strategy: Long BoE Dec'26 vs Sep'26 and 2s10s amid BoE and Fed on hold

We think front-end yields have more room to rally from BoE and Fed keeping rates on

hold. We like the risk-reward in receiving Dec'26 meeting against Sep'26 (at 23bps,

target: 0bps, stop 35bps). The rate expectations curve remains downward sloping for

UK rates in anticipation of the Bank's next policy move being a cut. Governor Bailey

stated there is "nothing to suggest the MPC is edging toward a hike" but in case the

energy price shock becomes more persistent, we think it would be easier for the Bank to

communicate any tightening at its November meeting when it releases its next

Monetary Policy Report. This week's Fed meeting should not be much of a concern for

the Bank in terms of spillovers. We have repeatedly highlighted that gilts are structurally

exposed to spillovers from US term premia shocks. However, as long as long-end US

yields are driven by higher inflation risk premia instead of real term premia, long-end