Key facts
- Investors are pricing in a Bank of England rate hike no earlier than February 2027.
- Market expectations for a December 2024 rate hike have fallen to 24.3 basis points.
- Only 4 basis points of tightening are priced in for the September 2024 meeting.
- British 10-year government bond yields are near a two-week low.
- Inflation in the UK rose to 2.9% in July.
- Bank of England Governor Andrew Bailey cited U.S.-Iran war risks for market pricing.
Market pricing indicates that investors do not fully expect a quarter-point interest rate hike from the Bank of England until its February 2027 meeting. Data from LSEG showed that by the time of the BoE's December 17 rate announcement, only 24.3 basis points of increases were priced in, a decrease from earlier in August. For the September 17 meeting, less than 4 basis points of tightening are priced in, suggesting only a 15% chance of a hike.
British 10-year government bond yields were down 2 basis points on Thursday at 5.01%, near a two-week low. While most economists polled by Reuters anticipate the BoE will hold rates at 3.75% this year, financial markets have generally expected an increase. Governor Andrew Bailey has stated that market pricing reflects the risk of an intensification of the U.S.-Iran war.
Recent data showed British inflation rose to 2.9% in July, driven by higher household energy bills, while the labor market remained subdued. Investors are also closely monitoring comments from Federal Reserve Chair Kevin Warsh at the annual central bankers' gathering in Jackson Hole, Wyoming.