UK DATA: Looking at the drivers of the change in UK CPI

EURSEK drops 18 ticks as January CPI comes in above consensus on an annual basis for headline CPIF (3.3% Y/Y vs 3.1% cons, 2.3% prior). CPIF ex-energy is in line with forecasts at 4.4% Y/Y though which is seemingly limiting the move.

• The Riksbank had forecasted CPIF ex-energy at 4.51% Y/Y, meaning the forecast gap between the Riksbank's November MPR and the actual inflation readings falls to -0.1pp (from -0.3pp in December and -0.5pp in November).
• We had noted before today's print that the bar to early rate cuts is quite high. On the surface, the MNI Markets Team believes today's reading makes the outside chance of a March rate cut near-zero, and a cut in May quite a bit more unlikely.
• On Thursday, SEB estimated that markets were pricing 0bps of cuts through the March meeting and -16bps through the May meeting.
• A reminder that a June cut from the Riksbank is also likely to align more closely to the easing cycles of the ECB and the Fed, which should protect the SEK from additional weakness.

Market focus has evolved since the turn of the year, with an eye on how long the BoE policy rate is kept at current levels as opposed to imminent rate cuts being priced, in line with the central thought process at the Bank.

• We also believe that positioning is likely a lot cleaner after this week’s UK data-inspired volatility.
• Positioning for a delayed, albeit swift start to BoE cuts is yet to be materially priced into the Aug ‘24/Dec ’24 BoE-dated OIS spread, which seems like an attractive play.
• Such a position would likely also benefit from an expedited rate cutting cycle given the expected betas of each leg.
• A single 25bp cut is priced through Aug ’24, with 40bp of cuts then priced across the Sep through Dec MPCs i.e. less than 2x 25bp cuts are priced over the latter 3 meetings.
• That ~65bp of ’24 cuts compares to pricing that was closer to 60bp post-labour market data, with the latter representing the shallowest cutting cycle priced this year.
• Such levels could allow those looking for a more dovish BoE response to exploit some of the recent repricing, exposing themselves to the potential for the BoE to deploy a relatively swift cutting cycle during H224.

• MNI: SWEDEN JAN CPIF +3.3% Y/Y