Global Rates: Scandi and BoE Central Bank wrap up, UK politics (again)

Hi and welcome to @NU8, James Morgan's global research podcast where we take a look at some of the driest behind the biggest trends and themes across fixed income currencies and commodity markets. I'm Francis Diamond, head of European Rates Strategy at James Morgan, and stay in German-wide colleague, Andrew Gupta to discuss the Ricks Bank, Norwich Bank and BUE meetings this week and also talk again about the latest developments in UK politics following the Make-A-Field by-election. So, again, let's start with the Ricks Bank. He left the policy rate unchanged at 1.75% this week with some tweaks to its forecast. How do you read the Ricks Bank messaging here on the path to policy rates and what's priced into the market? Thanks, Francis. Yeah, the Ricks Bank operates unchanged and made, as you mentioned, minor tweaks to its forecast. They now have an explicit hiking bias in the sense that their forecast now shows around 50% probability of a 25-basis point hike by December of this year and a full hike by end of next year. So, these are around, you know, at least in the front end and around five bases point higher relative to the March full cast. Now, in my mind, these divisions were DaVish compared to the market expectations, which was pricing at almost a full hike by September October going into the meeting and then this pricing has now been pushed still toward late Q4 at 26. So, well ahead of Ricks Bank's current guidance. I think, you know, current co-inflation, which is measured by CPIF, excluding energy, is around 0.5% which says a target of 2% and is expected to stay low for a few months. This is what is given that they're expecting their confidence to stay or the license to stay unhauled for a longer period. Now, of course, this low inflation is fundamentally driven by the VAT card that was announced this year, earlier this year and will reverse next year as the base effects kick in. Like I mentioned, you know, nevertheless, these lower-intemperevian inflating efforts are maximizing the luxury of not fushing into a hike. And I think recent developments in Middle East with declining oil prices has also come to their aid a little bit. I think a hike will eventually come as the energy prices are not expected to go back to pre-war averages in our mind. And the fact that ECB is raising rates, the Fed has done how fish the notches bank is also raised rates and hinted to increase further. All of these will kind of push the next bank to deliver a hike. For now, we think they will hike in December, but as I mentioned, a lot will depend on upcoming inflation rates. Okay, so let's stick with Scandinavia and you mentioned the Norsebank in there in terms of they've already raised rates. They had their meeting this week with the Norsebank keeping rates on hold at 425, but indicated another hike is possibly on the way. So does this match your view and how markets are reading the Norsebank at the moment? Yeah, so like I said, the Norsebank also kept its policy rates unchanged after having raised last month, which was a surprise move. So on hold this time was not really a surprise. We were barely pricing anything going into the meeting. They did boost their policy rate forecast higher over the coming months by around, I think 15 to 20 basis point, as inflation has consistently surprised to the upside over the last few months. I think the delivery this week was broadly along expected lines, although I had personally thought that they would indicate a longer pause at 4.5% in their policy rate forecast. They are currently indicating an almost immediate reversal of the hikes, which is forecasted to be slightly above of 4.5% meaning there is a 20% probability of another hike post a peak of 4.5%. I think the inflation will remain stick here then the forecast with further pressure coming via the currency channel, especially against the hawkish Fed backdrop. So our baseline is for them to hike again in September, broadly in mind with the Norsebank guidance and current market pricing, but I'm also expecting that 2027 frocker to speak on another words, expect a longer pause that is currently priced in and guided by the central bank like Rick's bank, we were usually discussing earlier. I think the next couple of inflation prints will be crucial in determining this in my view. And as of now, I think the August meeting is also live, which should again depend on the inflation prints. So let's shift to Bank of England for now, who also cap rates on hold at 375, an indicated little urgency for a near-term hike. Inflation data was softer than expected this week. So do you think they can hike rates at all this year? And if they do, would that be the price for the market in your view? So as you say, the Bank of England does seem patient and now, but I think ultimately we do expect them to deliver a hike at some point in the latter part of this year. I mean, I think we do acknowledge softer inflation print this week removes any urgency for the Bank of England to move. But I think the sense is there will be more visible evidence of indirect effects in terms of the impact of higher energy prices earlier in the spring and the impact on the surveys and particularly the forward-looking wage and price surveys, I think, will affect, if you mean the Bank of England, we'll have to respond at the hike rates this year. They do sound patient for now and seems they are waiting for clear evidence to second-round effects. But I think the risks are certainly they don't want to be seen as being too late in tightening policy if inflation pressures are clearly building. In terms of the vote this week, there were two dissents for a hike, 25-based point hike from Pill and Green and actually amongst the members who voted for unchanged rates. The minute it did actually highlight that one member man had noted inflation pressures are prominent but not the rate hike now is needed. So I think there is a possibility that sort of more dis-hawkish descent can build if the data warrants on the inflation side going forward. I mean, in terms of the market, as you mentioned there, I mean, the front-end price is around about 15-based points of hikes for September, about 35-based points of hikes for the end of this year in December and rough for the accumulative 46-based points of hikes by April next year. So yeah, clearly the expectations for more this tightening but I think the market is clearly not expecting an imminent rate hike in the next couple of meetings. I mean, it's probably worth noting that front-end pricing is slightly more than our economist view of just one 25-based point hike in November. But I think the lack of visibility around the magnitudes and the impact of these indirect effects combined with market expectations or close to 50-based points of head-hikes price by next year will probably keep Bank of England rate hike expectations price for the market close to current levels. Interesting that now the cumulative hike price for the sorry curve is kind of on par with what is there for the extra curve as well. Anyway, let's wrap up with an update on the latest UK political developments as expected and the Burnham Wanda Maker Field by election this week. So what do you think comes next and do you think market price any risk for political uncertainty? So just to recap, I mean yes, Andy Burnham, as you say, won the Maker Field by election. He had a pretty large 55% share of the vote that was on turn out of just above 58% and they 9,231 majority over a form UK UK in second. So that majority is actually bigger than the 5,000 margin of victory that Labour enjoyed in Maker Field in the 2024 general election. So yeah, a strong result there. I mean if you look at the market moves, guilt yields are higher pretty much across the curve on Friday. But really that's more reflective of the fact we seen it sell off in buns and a bit of geopolitical noise around the around US deal on the media wires rather than the burn of by election victory I think to be honest. And when we actually try to look at our kind of measure the risk premium, the two cents curve, I mean it has steepened but rather better basis point and 10 year guilt sports spreads, they're not really very moved today. So I don't think there's a huge clear impact from the by election on the market in that sort of sense. So as you said, what comes next? Well, this does open the door for Burnham to eventually become prime minister but exactly what those next steps are to be honest are and clear here. I mean there are media reports suggesting Burnham will wait and probably doesn't have an intention of launching a leadership challenge in the next few days with a sense he may well try and encourage Starmat to serve a timetable from or to lead the departure as Labour leader and prime minister. In that case, it may take several weeks to sort of get clarity and see exactly Burnham being put in the position of prime minister but it would also avoid the need for a formal leadership contest. However, there are other reports in the media in terms of Starmat indicating he would look to stand in any leadership contest and if this were to happen and he were to fight against Burnham and possibly other challenges may appear if they can muster enough support. Any contest that is going through the Labour. leadership process and ballots would probably last several months. But I think overall, in our view, if that were to be the case, and we were to get either relatively sort of swift and orderly departure or a leadership contest that takes several months, I think the likelihood there's a significant increase risk premium priced into UK yield is probably low. I think the sense would be whichever route is taken, burn and would most likely win and become Prime Minister. But I think there's always a bit of uncertainty in terms of if there is a formal leadership contest, does that process require burn and to be a bit more detailed on its overall vision and policy framework? That might be the case, but even so, it's probably unlikely it provides a lot of insight on fiscal policy shifts, and that's really what the market would be interested in any implications of fiscal policy. So overall, I think we see a high likelihood that probably burn and will be installed as Prime Minister in time for the Labour Party conference in September. But I think for now, we just don't expect a lot of visibility on any fiscal policy implications until we get much closer to an autumn budget, which maybe is sort of October and November time. And I think when we look at the Tuesdays, guilt curve, yes, it's a bit steep on the relative value basis when we adjust for front-end rates, but it's not particularly excessive. And I don't think we expect any significant increase in political or fiscal term premium to be brightened to the curve just yet. So thanks for listening and thanks again, Dr. For joining, that's all from us. Stay tuned for more updates on the fixed income space here on @anyrate, gay, organs, global research, podcast series. This communication is provided for information purposes only. These read J. Morgan Research reports related to his content, more information, including important disclosures. Copyright 2026, J. Morgan Chase and co. All rights reserved. This episode was recorded on 19 June 2026.