[MARKET UPDATE] Market pricing is, post-UK CPI, even more torn between a March vs April cut

Pricing, as of 07:35GMT

• Mar -22.9bps (prev. -22.1bps)
• Apr -23.5bps (prev. -26.7bps)
• Jun -39.6bps (prev. -37.1bps)
• Jul -38.9bps (prev. -40.7bps)
• Sep -50.5bps (prev. -51.2bps)
• Nov -45.7bps (prev. -46.6bps)
• Dec -54.5bps (prev. -54.8bps)

To recap the series/Newsquawk analysis (analysis written at c. 07:10GMT):

• In-line with market consensus on the headline at 3.0% Y/Y, and as such slightly hotter than the BoE's 2.9% forecast for the period, accompanied by a hotter than expected core and services figure. M/M metrics were broadly as expected, unwinding the December base effects.
• On one hand, the data is on balance unlikely to push the BoE towards a March cut (-22bps implied pre-release) over April (-26.7bps implied pre-release), particularly given Governor Bailey's emphasis on inflation in recent split decisions and as today's headline was hotter than the BoE's own view; i.e. there is enough in the inflation series for Bailey to reasonably argue that there is merit in waiting until April. However, the headline rate still moderated significantly from the prior and keeps the inflation trajectory on track to return to target, which, alongside the dovish unemployment/wage series earlier in the week, argues in favour of a March move. Given this, there is perhaps some greater pertinence now to be placed on the Retail Sales and Flash PMIs scheduled for Friday, as another input.

The UK CPI numbers show a slight inflation increase, which complicates market expectations for a rate cut, now more evenly divided between March and April. While the inflation print slightly exceeds the BoE's forecast, the overall trend remains conducive to a potential March cut, yet Governor Bailey's focus on inflation may favor waiting until April. This mixed data will likely place a stronger emphasis on upcoming indicators, such as Retail Sales and Flash PMIs, as traders reassess their positions in light of these developments.