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UK swap forwards price in MPC inflation downside risk warnings

FXStreet (London) - Despite downside inflation risk warnings from Bank of England Monetary Policy Committee members this morning when they appeared before the Treasury Select Committee, the 5y5y inflation swap forward market remains steady.

In a prepared statement to the TSC, Jon Cunliffe stated that: “Weak pay and inflation data, coupled with the strength in participation, have been the key reason why, despite unemployment falling through the 7% threshold in May, I have concluded in subsequent meetings that there remains substantial spare capacity in the labour market.”

BoE governor also warned that inflation would “more likely than not” dip below 1 percent.

With much of this already communicated to the market in the Bank of England’s Quarterly Inflation Report, the UK 5y5y inflation swap forward market – a measure of UK inflation expectations – was largely untroubled. Prices hit lows on opening at 3.3875, with further short-lived breakouts at 3.3890, but contracts have largely been anchored around their current 3.4200 levels.

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