GBP flows: GBP up after Pill comments, but...

Comments from BoE chief economist Huw Pill have been taken as slightly hawkish by the markets and GBP has risen in response, with EUR/GBP testing down towards the 0.86 level, with UK 2 year yields rising around 5bps in response. Still, EUR/GBP remains above where it was before BoE deputy governor Ramsden spoke last Friday,  with UK 2 year yields also still significantly below the levels seen before Ramsden spoke. Pill’s comments didn’t encourage ay expectation of a rate cut in May, and indicated that given the Bank’s distrusts of the labour market data, they will need to see services inflation sub-4% before they are comfortable with cutting rates. On the face of it, this is a long way off, as currently services inflation is running at 6% y/y. But there is a clear slowdown in recent months with annualised CPI services inflation running close to 4% in the last 6 months, and between 3 and 4% in the last 3 months.  So we may already be at levels that are consistent with lower rates. While Pill’s comments make a May cut unlikely, softish inflation numbers in April and May could be enough to see a June cut.