BoE Rate Hike Expectations Drift into 2027 as Bond Yields Tumble

Investors are not fully pricing in a quarter-point rate hike by the Bank of England until its February 2027 meeting, according to market prices. This is evident from the data provided by LSEG, which shows that investors are expecting only 24.3 basis points of rate increases by the time of the BoE's December 17 rate announcement.

This is a decrease from the previous expectation of over 25 bps for most of August. Additionally, less than 4 bps of tightening is priced in for the BoE's September 17 meeting, implying only a 15% chance of a hike. In contrast, the European Central Bank has 24 bps of tightening priced in for its September 10 decision.

The British 10-year government bond yields have been gradually moving lower after an interruption on Wednesday, with a decrease of 2 bps on Thursday to 5.01%. This is not far from the two-week low of 4.979% struck on Wednesday.