06:50 AM EDT, 06/25/2025 (MT Newswires) -- There were six separate Bank of England policymakers speaking on Tuesday, note MUFG.

Governor Andrew Bailey spoke twice, along with Deputy Governors Dave Ramsden and Sarah Breeden, Chief Economist Huw Pill and Monetary Policy Committee member Megan Greene. MUFG knows already from the policy decision vote earlier this month that Deputy Governor Ramsden believes the economy already justifies further monetary easing so the focus was on the other speakers to gauge a possible shift in guidance or pace of easing going forward.

One takeaway from the comments on Tuesday is that the MPC is likely honing in on the labor market more and more and sees that as the key downside risk that could trigger more cuts than expected, wrote the bank in a note to clients. Greene cited labor market loosening in her comments as justification for concluding there are downside risks to growth.

However, Greene also saw upside risks to inflation, although she did acknowledge there was some "nascent" evidence of trade diversion from China that would be disinflationary. All in though no sense of Greene being in a camp that could argue for a faster pace of easing, stated MUFG.

Ramsden was clear it is the labor market that is the primary reason he sees scope for further easing, with the labor market providing a "sufficiently strong" case for cutting rates again.

Breeden and Pill didn't make specific monetary policy comments but Governor Bailey dropped a hint of a potential change to quantitative tightening (QT) policy, which will be confirmed either way at the policy meeting in September.

Bailey stated that the QT decision will be "more interesting" this year and will soon conduct its review to make the announcement in September, pointed out the bank.

Importantly, Bailey stated that the BoE assessment would take into account any sell-offs in the Gilt market. The upward pressure on long-term rates had resulted in "quite a steepening" of the yield curve, although he was quick to say that that was a global development and as such not linked to QT.

The Bank of Japan would make the same argument about the steepening of the Japanese government bond curve but it still last week announced a 50% cut to the pace of its QT plans, added MUFG.

The BoE in its assessment could also conclude that the upturn in usage of liquidity via the weekly term repo facility had risen to a level that could allow for some alleviation of liquidity drainage via QT -- the weekly term repo allotment hit a record 70 billion pounds last week.

A slowing in the pace of QT (100 billion pounds per year at present) would certainly help sentiment in longer-term debt that has been an issue in the United Kingdom, the United States and more recently Japan. The hints from Governor Bailey will certainly lift expectations further that the pace of QT will be cut, which all-else-equal is a positive for Gilts, according to MUFG.

Rolling correlation analysis indicates a negative correlation between 30-year Gilt yields and sterling (GBP) has been a feature since the Former Prime Minister Liz Truss episode in 2022 and as such, assuming that was to persist, could be viewed as a supportive factor for sterling, said the bank.