We’ve all heard this lunchtime from the Bank of England Monetary Policy Committee with a rather unremarkable update on their Monetary Policy plans.

The announcement didn’t surprise hugely and as a result the Gilt market’s initial reaction was rather muted, maybe a little negative at the long end on disappointment that the Bank isn’t doing more. Monetary policy conditions do, however, remain extremely accommodative befitting the extreme conditions that the UK economy is enduring. Base rate will remain at 0.10% and the pace of asset purchases under the quantitative easing program will increase to £745bn, with purchases continuing until the end of the year – this was in line with economists’ expectations as expressed before the announcement. But equally, the 8-1 vote split should remind everyone that the MPC is not entirely composed of ultra-doves.

Anyway, we haven’t yet reached the point whereby the Bank imposes negative policy rates on the economy – a development that, as you might recall, Governor Bailey does not rule out “as a matter of principle”.

So far so good you say but, the really interesting thing is how much flexibility is being retained in some of the forward looking guidance contained in the initial policy announcement.

Whilst the Bank are acknowledging the early signs of a pick up in consumer activity, and the likelihood of the downturn in GDP for Q2 being a little less severe than previously envisaged, they are surely extrapolating as optimistic view as possible from very thin data. The latest CPI print earlier this week shows the disinflationary trajectory and the risk is that by the time that the end of Q3 approaches we will be looking at an environment where deflation is apparent. That is the time at which the potential for negative rates will really come into focus and, as a consequence, so will the increased volatility of nominal yields, inflation and break-evens – all consequential headaches for pension schemes across the country.

So lets look ahead. Next time around, in August, the MPC meeting is going to be accompanied by an updated quarterly inflation report – given how weak inflation readings have been and how unreliable the data collection process for some retail and services activities have been, that is going to be a fascinating read.