The same energy shock does not imply the same policy response. This paper tests the sterling strip against the Bank of England's stated conditions for tightening, compares three central banks through a common Taylor-rule framework, and sets out the trade scenarios if the UK hiking cycle proves shallower than priced.
From the reaction function to the contract
The paper separates a possible November insurance hike from the additional tightening embedded in December and the 2027 SONIA strip. It examines scenario pay-offs, conditional roll-down, cash-gilt alternatives and the risks from wages, services inflation, energy, fiscal policy and neutral-rate estimates.
One rule, three economies
Core and headline inflation produce different prescriptions for the Fed, ECB and Bank of England.
The curve has already tightened
How market rates transmit restrictive conditions even when Bank Rate stays unchanged.
Two parts of the trade
The December MPC contract tests a second hike this year; June 2027 SONIA expresses the depth of the cycle.
What would kill the thesis
Second-round inflation, persistent energy pressure, larger policy moves and a higher neutral rate.
Full paper
Views are the author's own as at 1 October 2026. Market levels use 30 September closes; scenario, carry and roll-down figures are approximate calculations on the stated assumptions. Nothing here constitutes investment advice.