The BoE Hikes In Sept
Why Sept offers the best balance between policy confirmation and SFI mispricing.
The ECB has shown its hand and already started tightening monetary policy. The Bank of England (BoE) isn’t far behind, with several of the same characteristics (e.g. imported energy inflation) at work here in the UK as are being shown in the Eurozone.
Therefore, the focus turns to when the MPC will pull the trigger and hike. In our view, July is a non-event, but September is both live and likely to see the first move. This isn’t currently being fully appreciated by SFIU6, with options providing an attractive payoff to put our flag in the sand.
SUMMARY
Hikes are indeed coming for the UK, with inflation expectations rising again and the Middle East conflict showing no signs of abating.
We favour September as the month to move as it allows the BoE to show a proactive stance without risking being caught behind the curve in Nov/Dec.
Current pricing provides an attractive payoff of 4:1 on a put condor for SFIU6 with limited risk.