U.S. markets closed
  • S&P 500

    4,432.99
    -40.76 (-0.91%)
     
  • Dow 30

    34,584.88
    -166.44 (-0.48%)
     
  • Nasdaq

    15,043.97
    -137.96 (-0.91%)
     
  • Russell 2000

    2,236.87
    +3.96 (+0.18%)
     
  • Crude Oil

    71.96
    -0.65 (-0.90%)
     
  • Gold

    1,753.90
    -2.80 (-0.16%)
     
  • Silver

    22.36
    -0.43 (-1.90%)
     
  • EUR/USD

    1.1732
    -0.0040 (-0.34%)
     
  • 10-Yr Bond

    1.3700
    +0.0390 (+2.93%)
     
  • GBP/USD

    1.3737
    -0.0059 (-0.43%)
     
  • USD/JPY

    109.8950
    +0.1770 (+0.16%)
     
  • BTC-USD

    47,580.44
    -718.16 (-1.49%)
     
  • CMC Crypto 200

    1,193.48
    -32.05 (-2.62%)
     
  • FTSE 100

    6,963.64
    -63.84 (-0.91%)
     
  • Nikkei 225

    30,500.05
    +176.71 (+0.58%)
     

U.K. Traders Are Now Betting on Two BOE Rate Hikes Next Year

·2 min read

(Bloomberg) -- Money markets traders are pricing in tighter monetary policy from the Bank of England as inflationary pressures in the economy build.

They now see a quarter-of-a-percentage-point increase to the BOE’s key rate by December 2022, on top of a 15-basis-point hike that was already priced for May. That would take it to 0.5% by the end of next year, up from 0.1% currently.

The bets were brought forward after as data Wednesday showed U.K. inflation surged more than expected to the strongest pace in more than nine years, and after U.K. company payrolls in August climbed above their pre-pandemic level.

The BOE will “be focused on the medium-term outlook for prices and the labor market which, as seen in yesterday’s jobs market report, is holding up better than feared,” said Dean Turner, an economist at UBS Global Wealth Management. “These will keep the Bank of England in a hawkish mood, laying the ground for a rate hike in the first half of next year.”

It’s a sharp turnaround from the second half of last year, when traders were pricing in rates as low as minus 0.1% as the economy sputtered. They only removed bets on further loosening in February after policy makers stressed that negative rates are not imminent amid the U.K.’s successful vaccine rollout.

The shift in market expectations also follows a change in forward guidance from the BOE last month, where policy makers said they now foresee some “modest tightening” over the next three years. Last week, Governor Andrew Bailey said he is among officials who think a minimum criteria for tighter U.K. monetary policy has been met.

While the central bank traditionally shifts its key interest rate by multiples of 25 basis points, it last cut rates by 15 basis points in March 2020, at the height of the coronavirus pandemic. If officials wanted to raise rates, a move back to 0.25% is seen by strategists as the likely first step.

The pound rose as much as 0.2% to $1.3843 on Wednesday. The yield on 10-year gilts was steady at 0.74%, after climbing to as high as 0.76% earlier.

(Adds market moves in final paragraph.)

More stories like this are available on bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2021 Bloomberg L.P.