UK Interest Rates Set for Hike as Investors Price in Three Rate Increases

The Bank of England is facing pressure to raise interest rates as investors price in three hikes over the next two years. Two-year gilt yields have jumped over 4.5%, pushing up borrowing costs and threatening the UK's economic stability.

The current interest rate stands at 3.75%, but analysts believe it could be raised due to a prolonged Iran war or higher inflation caused by rising oil prices. The Brent crude oil price has hovered around $95 per barrel, while European gas prices have hit a three-year high.

RBC Capital Markets analysts expressed caution, stating that current interest rate pricing may not be realized and there are risks of further weakness. AJ Bell analysts predict one interest rate hike in November, followed by another in February and the third in June, taking rates up to about 4.5%.