UK Implied Base rates

One look at current SONIA swap rates (as of 16th Oct 2023 Chatham Financial) show, based on the implied base rate, that markets believe the UK base rate will come down in a few years to between 3.5%-4%, and quickly - see graph below. The markets may have priced in a quick reduction in Inflation. This is challenging because ONS CPIH shows that core inflation has not moved from its sticky level of circa 6% (shown below as of 16th Aug 2023), since it got there last year.

The UK Yield Curve as well as the Implied base rate curve both show dislocations. The latter curve is shown below and may present an opportunity to either (i) enter into outright receive floating swaps if you think the implied base rates are too low (ii) enter a duration neutral swaps arrangement where you pays floating for a 5 and 7 year and pay fixed for the 6 year - if one thought that the BoE would not raise rates in year 6 and reduce them again in year 7 per the implied rate path. It is also possible if markets are underestimating the rate path that yields have further to climb