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On top of all this, rate expectations were also over-extended. The BOE has a nastier inflation problem to deal with than most of its counterparts, but it also has a weaker economy, which would make it harder to tighten rates aggressively. Thus the notion that the Bank might have a terminal rate that tops close to a percentage point higher than in the US, and more than 2 percentage points above the projected terminal rate for the European Central Bank, looks a little overdone. The following chart was produced by Longview Economics of London.
Longview also suggested that speculative bullishness about sterling looked extreme (which was therefore bearish for the currency), and suggested that if this latest inflation reading really is a “turning point,” there is further to go. It suggested buying UK homebuilders, whose share prices typically surge if rates recede.