BOE Warns: Second-Round Inflation Effects Could Intensify

The Bank of England (BOE) has signaled concern that second-round inflation effects—such as wage-price spirals and entrenched inflation expectations—could prove more persistent than anticipated. This reinforces expectations of a prolonged tightening cycle, supporting the British pound through higher rate differentials and elevated real yields. The commentary increases pressure on BOE policymakers to maintain a hawkish stance, limiting near-term easing even amid sluggish growth, thereby boosting demand for GBP-denominated assets. Markets are now pricing in fewer rate cuts over the next 12 months, with the yield curve steepening on inflation repricing. Traders will focus on the upcoming wage growth data and the BOE’s Inflation Report for confirmation of sustained inflationary pressures.

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