Bank of England - Cut confidence cracks

The Bank of England is expected to hold rates at 4.00% next week. Markets are fully priced, so attention will turn to any signal that the MPC might reconsider its quarterly easing rhythm. Inflation remains sticky despite signs of labour market slack, and while we still expect a 25bp cut in November, our conviction is fading. The MPC is also set to decide on QT, and we anticipate a £60bn annual reduction in bond holdings. A shift away from long-dated gilts is possible, but without a fiscal adjustment in the Autumn Budget, concerns over fiscal dominance may resurface.