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The Citi / Yougov UK inflation expectations has fallen further.

• The short-term inflation expectations (which has averaged 2.46% over the 2010-19 period) fell to 4.7%Y/Y, down from 5.0% in April and 5.4% in March. That is encouraging but it is still the third highest print since July 2023 and had fallen as low as 3.3% in February 2026 (immediately before the Iran conflict began).
• The medium-term expectations measure fell to 4.0% from 4.2% in April and 4.5% in March. This puts the medium-term measure a tenth below the 4.1% rate of January while the 2025 average was also 4.1% (the 2010-19 average was almost a percentage point lower at 3.16%).
• This is obviously still uncomfortable levels for the MPC, but medium-term expectations remaining at similar levels to 2025 will bring some comfort. However, there will still be concerns that the short-term measure (generally considered 1-year ahead) is too high despite falling from its peak.
• We think that this data has a bit of something for everyone, therefore. For the more hawkish members medium-term expectations remaining above their long-term average will be a concern, as will the level of short-term expectations. For the more cautious members, medium-term expectations falling back towards 2025 average levels may provide some comfort.
• Overall, we think this may increase the probability of Greene and potentially Mann joining Pill in voting for a hike as soon as this month. But we don't think it will be seen as significant enough by other MPC members to join them.

Sell-side notes that we have seen don’t reveal much in the way of meaningful changes in bias. Mixed views on BoE pricing remain intact, with some focus moving to September BoE-dated OIS. Meanwhile, any real conviction surrounding a short-term extension of the recent rally is seemingly lacking.

• BMO: Over the near term, we expect oil prices to continue to effect gilts more than domestic politics or the BoE because: (1) For investors in government bonds, inflation risk is a greater issue than fiscal risk; (2) Evidently, incumbent and prospective Labour Party policymakers respond quickly to adverse gilt market reactions to policy proposals; (3) The BoE in this environment is less a leader than a follower of the market. Over the medium term, policy choices of Labour leadership incumbents and contenders and the MPC do matter. The monetary and fiscal policy choices which have pushed 5y5y forward CPI pricing above 3%; and have seen the 10y real yield rise to about 1.5%, significantly limit the medium-term scope for yields to fall.
• BofA: We remain paid June MPC-dated OIS. While a June hike is no longer our base case, we continue to see the market as having erased too much from June hike pricing, With Gilts hovering near year-to-date rich levels relative to Sonia and positioning likely increasingly long following the strong performance of recent weeks, higher Gilt supply in June as well as domestic politics are two risks for further spread performance ahead.
• Goldman Sachs: The bull-flattening of the gilt curve in the last two weeks is consistent with term premium compression. Additionally, gilts have also outperformed swaps, pointing to a relaxation of supply-related risks. However, we continue to think that durable relief will be front-end-led, given that macro data continues to soften, and the UK’s fiscal situation and political risks are likely to remain in focus over coming weeks and months. We recommend 1y forward 2s10s GBP OIS steepeners for this view, where negative carry is not particularly punitive.
• J.P.Morgan: BoE commentary sounds more cautious on delivering a hike in the near term but we continue to expect a hike in July, as surveys indicate risks of indirect effects on inflation from higher energy prices against a backdrop of likely ongoing disruption to shipping via the Strait of Hormuz. We recommend tactically paying September MPC OIS. We remove our bullish bias on 1Yx1Y SONIA and turn neutral. We do not expect any significant increase in political-driven term premia to be priced into the intermediate sector of the gilt curve or on a cross-market basis. The relative steepness of the 2s/10s curve has partially corrected. We shift to a 10s/30s gilt curve flattening bias with the curve screening 5bp too steep on a relative basis vs. the level of yields
• UBS: We continue to like fading BoE's near-term meetings. We closed our received June MPC and now prefer to receive the September meeting against July's. Spreads against peers compressed with political risks subsiding. However, yields remain much higher than when the BoE started its easing cycle. The tightening of financial conditions allows the MPC still to hold at the June meeting. Spillovers from the ECB and the Fed should stay limited as long as oil prices remain range bound. Our outlook on 10-Year gilts remains unchanged with forecasts of 5.00% and 4.75% for Q2 and Q4, respectively.

Gilts have found a short-term base as the rally in crude slows in recent trade.

• A reminder that the latest sell off in gilts came after Tasnim sources suggested that Iran has stopped exchanging messages with the U.S. owing to Israeli action in Lebanon, which breaches one of the pre-conditions for the ceasefire deal. Further shipping restrictions were also touted in the report.
• Gilt futures have broken first support at 87.86, allowing bears to focus on the May 22 low (87.48). The short-term bullish technical theme within the wider bearish setup remains intact. A break of mid-May lows would signal a resumption of the downtrend.
• Yields 8-12bp higher as the curve bear flattens. 10s back to 4.90% after failing to hold moves below 4.80% last week.
• BoE-dated OIS once again fully discounting a hike through September. SONIA futures now flat to -17.0 on the day.
• Gilts, along with wider core global FI markets, remain intertwined with swings in energy prices linked to the geopolitical backdrop in the Middle East.
• This leaves the BoE in wait and see mode.
• A reminder that most of the MPC have suggested that they need to see further evidence when it comes to inflation passthrough stemming from the Middle East before acting.
• The market-implied BoE cycle remains well off the recent extremes, which saw ~85bp of hikes priced through in April in recent weeks after ~105bp of tightening was priced through December during the initial energy price surge in late March/early April.