UBS: Market pricing reflects the possibility of a rate hike by the Bank of England higher than it should be.

In a report, UBS's Dean Turner said that market pricing reflects a higher likelihood of a rate hike by the Bank of England than is warranted. He stated that all eyes will be on evidence of second-round effects, such as wages and pricing behavior, as well as how monetary policy might need to respond at this week's Bank of England meeting. However, the Bank of England's decision-making committee and agents' summaries suggest that energy price shocks are more likely to weigh on corporate profit margins and demand than trigger a wage-price spiral. "Despite an increase in inflation expectations for the next year, long-term expectations remain well anchored, and wage growth expectations have not risen," Turner said, adding that the risks facing growth also indicate that central banks around the world will adhere to a cautious strategy.