The outlined 4-3 vote in favour of a 25-basis-point cut underscores growing concerns over downside risks from recent U.S. tariffs on UK exports. With the MPC split and inflation nuances at play, UK investors should prepare for ripple effects across the gilt market and broader portfolios.

MPC Split and the Hawk-Dove Divide

The May MPC meeting minutes clarify a mounting divide among members. Four members voted for an immediate 25bp cut to cushion the economy from trade shocks, while three—including Governor Bailey—opted to hold rates steady, citing sticky inflation risks. This hawk-dove split highlights the complexity of BoE policymaking as it balances growth support against price stability.

Gilt-Yield Moves and Strategic Insights

Market expectations for rate cuts are already shifting gilt yields. Consider these tactical strategies:

• Extend Duration – Position in long-dated gilts to capture price gains as yields fall with looming rate cuts.
• Inflation-Linked Securities – Add ILGs to hedge against persistent inflation even as nominal yields decline.
• Active Duration Management – Adjust exposure dynamically across the curve to navigate potential volatility from MPC splits.

Actionable Tips for Short-Dated Gilt Trades

For focused near-term moves with lower duration risk:

1. Pair Gilts with Corporate Bonds – Combine short-dated gilts with high-quality corporate bonds for safety and incremental yield.
2. Curve Flattening Trades – Position for short-end flattening as anticipated cuts compress short-tenor gilt spreads.

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