Temporary rate cut likely form BoE

The majority of indicators show continued strength in the domestic market of U.K. economy, offsetting some of the shocks emanating from abroad. Indeed it seems almost ironic that the market is talking about rate cuts in the one economy that seems capable of generating domestic inflationary pressures soon. 

With unit labor cost growth at 2.2%, labor market tightness has shown signs of biting for a few months now and this should contribute to underlying inflationary pressure further down the line.

"Nonetheless the possibility of the BoE cutting rates remains a tail risk if a large shock were to hit the U.K. economy. Given the underlying domestic economic conditions, we would expect a rate cut to be temporary and envisage the Bank of England communicating it as such. Therefore, we do not see this tail risk as adverse for our cross-market curve trade; indeed, we would expect the 2s5s to steepen in the U.K. under such circumstances", says Bank of America Merrill Lynch.