UK Interest Rate Bets Trimmed as BoE Cautions on Iran War Spillover

The Bank of England's (BoE) decision to keep interest rates unchanged at 3.75% has led to a decrease in bets on UK rate hikes, with traders now pricing in just 29 basis points (bps) of tightening this year, down from 38 bps previously.

This move comes after the BoE's Monetary Policy Committee (MPC) left rates unchanged, despite one policymaker voting for a hike, resulting in a 6-3 split. Governor Andrew Bailey emphasized that there is huge uncertainty around the U.S.-Iran conflict and its impact on energy prices and inflation.

The BoE's central projection shows inflation rising to 3.2% later this year from a 15-month low of 2.6% in June, which is softer than the Bank's last full forecasts in April but similar to what it predicted in June.