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BoE POLICY OUTLOOK CPI outturns for Feb (released Mar 21) revealed prices shooting up quicker than inferred by the Feb QIR and were more in tune with the Mar MPC minutes and hawkish Forbes vote. Via PPI metrics there is more pipeline pressure to come and the Pounds fall in H2 2016 still reverberates. Granted higher food prices were also partially to blame but there always has to be an explanation for a consensus beat. The BoE's main hawk, Forbes, has to sit on one more meeting before she jets off in Jun and by then there could be more. The test of resolve is on May 11th (another super meeting) with April by-passed and the longer run due to Easter. Another rise in CPI metrics before then could easily materialise with headline over 2.5%. 1/2 more tightening votes and players will realistically expect a late 2017 rate hike, Brexit going well or looking at a hard exit. In any case, the curve will have to normalise soon given the flat trajectory. If the MPC has to play catch-up, that too could see the 10-year yield reach 1.50% quite easily. For now, the 1.25-1.30% area looks rich, with employment still at historical highs despite some worries that Brexit may slow the economy down. Thus far though govt finances are looking healthy, confidence in the housing market and wages are steady. AB


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