Part 2/5:
Inflation remains a significant concern for the markets, overshadowing the Bank of England's communications. Despite the dovish notes from the Bank, the market’s response has been tepid. In fact, yields on gilts have increased significantly lately, illustrating a lack of confidence in the Bank's guidance. The two-year inflation break even suggests inflation will exceed 3%, a forecast that impacts the market's willingness to price in additional rate cuts. Overall, the market does not appear inclined to buy into the bullish narrative on gilts, pointing towards a challenging short-term outlook for this asset class.