BoE Rate Hike Expectations Slip to 2027 as Markets Price in War Risk

Investors do not fully price in a Bank of England rate hike until its February 2027 meeting, according to market prices shown on Thursday. This is based on LSEG data, which indicated that just 24.3 basis points of rate increases are priced in by the time of the BoE's December 17 rate announcement, down from over 25 bps for most of August.

The chance of a hike at the September 17 meeting is only 15%, with less than 4 bps of tightening priced in. This contrasts with the European Central Bank, where 24 bps of tightening are expected at its September 10 decision.

British 10-year government bond yields fell to 5.01% on Thursday, nearing a two-week low of 4.979%. Despite this, most economists polled by Reuters have long expected the BoE to keep rates unchanged at 3.75% this year, as they believe markets are pricing in the risk of an intensification of the U.S.-Iran war.