BoE's Lombardelli says she thinks there could be less slack in the UK economy vs the BoE's central view, at 0-1% vs 1%

• Hard to determine if the UK economy is more resilient to price shocks, or if the absorption limit is being approached.
• Policy has been less restrictive than thought, due to economic resilience.

Deputy governor remarks on the output gap go to the core of the BoE's reaction function: a smaller estimate of slack implies more persistent domestically generated inflation and argues for a slower or shallower easing path, which prices first through the front end of the gilt curve and SONIA strip rather than the long end. The distinction worth drawing is between the two readings she offers: if the economy is simply more resilient to price shocks, policy restrictiveness can be recalibrated without much inflation consequence, whereas if the absorption limit is near, the bar to further cuts rises materially. In past episodes, single-official challenges to a central view have moved pricing only when they signalled where the committee's centre of gravity was shifting, and here her known hawkish lean means the comment is partly anticipated; the tell is whether the chief economist or the governor echoes the slack scepticism. Worth noting this also feeds the neutral-rate debate embedded in her remark that policy has been less restrictive than thought, which bears on the perceived terminal rate rather than just timing. The follow-ons are the next wage and services inflation prints and any revision to the Bank's own supply-side assessment.