BoE unlikely to go with market pricing on rates

The Bank of England (BoE) will need to acknowledge global events and data that justify a more dovish tone. But the BoE is not expected to "row back" expectations to where the rate strip currently sits. Expressions of concern and uncertainty are expected to be tempered with references to the modest likely impact of China developments on the UK economy and to a moderation in currency induced disinflationary pressure due to sterling slippage.

However, there might be a circular aspect to any sterling reference being used as a reason for the BoE not to concur with market pricing on rates. It is suspected that dovishness is priced and a "not dovish enough" set of minutes is probably the greater risk, which would offer sterling support

"The BoE will have been busy in other ways this week, beginning a series of twelve reverse auctions to plough £16.9bn back into the gilt market. This will extinguish some £17.5m/bp of duration risk over the course of September", says Bank of America. 

It will, for a short while, feel like QE all over again and this leads us to retain a tactical bullish bias despite the fact that the minutes may disappoint the doves.