The Allocation Brief

The Allocation Brief

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Latest — 11 May 2026

Inflation outlook

The Bank of England still sees a path back to target inflation, but only if the energy shock fades and wage pressures remain constrained. If oil prices stay high and second-round effects take hold, rates could rise far beyond current market pricing.

More issues

MPC and FOMC preview

Last week, we saw the first hard data on the inflation impact of the war with Iran on the UK economy, and we heard testimony from the next Fed Chair when he appeared before the Senate Banking Committee.

Market calm

Crude has slipped from its peak, lifting markets, but past shocks have driven far higher prices. With supply risks on one side and weaker demand on the other, oil could swing either way. That even split may explain the calm across risk assets.

Credit spreads

Spreads remain tight with only a modest widening in the year to date. The shift has been a slow grind, not a shock, and equities show the same pace. Markets appear calm, with gloomier outlooks given little weight in prices.

Market conditions

Gilt yields have surged at a breakneck pace, yet the case to shift stance remains weak(ish). Equities have slipped but not enough to offer clear value. With risk signals muted and oil the key swing factor, holding near neutral still looks like the smart move.

March MPC Preview

The Bank of England meets this week amid a dramatic shift in market expectations. Oil prices have surged, rate-cut hopes have evaporated, and gilt yields have jumped sharply. While a March cut now looks unlikely, the case for hikes remains far from clear.

Market movements

We are a week into a major conflict in the Middle East and an associated near-sudden stop in oil and gas tanker traffic through the Strait of Hormuz. This week’s note reviews the impact so far on capital markets and commodity markets and sets out how, as an asset allocator, I am responding.

Inflation outlook

In last month’s inflation update, I set out my expectations for inflation to move from 3.37% in December to 2.93% in January. In the event, the year-on-year increase in headline CPI came in at 3.01%. That is close enough for my purposes.

Sterling rates

The chart below sets out my estimates of the odds that the policy rate is eased by as much as 100 basis points over the coming year. As is shown, there is a solid chance of two quarter-point cuts, but the probability thins quickly beyond that point.

Warsh nomination

Over the last few months, had you asked me who would be the next Fed chair, I would have said, “one of the two Kevins - though, if I were President, I’d pick Waller.”