The Bank of England cuts short-term inflation projections implying an even more gradual pace of tightening, with the market currently pricing the first lift-off in the Q4 2016 or first quarter of 2017.

The quarterly Inflation Report from the Bank of England showed a lower short-term inflation outlook, with inflation set to hit the target slightly later than originally predicted, paving the way for even more gradual monetary tightening. Given the global economic outlook and safe asset yields, the market's perception of the future interest rate development is currently reflective of an even more gradual pace of tightening, with the first lift-off in base rate delayed to the first quarter of 2017.

While the market has been pricing the first lift-off in the BoE's base rate in the second quarter of 2016, the even more gradual shift compared to August means the market now expects this hike in the first quarter of 2017.

At the same time, the BoE sees softer GDP growth for the first three quarters of 2016. The outlook for GDP beyond 2016 remained broadly unchanged, with the BoE forecasting annual GDP growth rate at around 2.5% from the fourth quarter of 2016 until the final quarter of 2018.