LONDON, Aug 27 (Reuters) – Investors do not fully price in a quarter-point rate hike by the Bank of England until its February 2027 meeting, market prices showed on Thursday as bond yields extended a gradual move lower after an interruption on Wednesday.
LSEG data showed 24.3 basis points of rate increases priced in by the time of the BoE’s December 17 rate announcement, down from more than 25 bps for most of August, and 36 bps of increase by the time of the February 4 rate announcement.
Less than 4 bps of tightening is priced in for the BoE’s September 17 meeting — implying just a 15% chance of a hike — compared with 24 bps of tightening priced in for the European Central Bank at its September 10 decision.
British 10-year government bond yields were 2 bps down on the day on Thursday at 5.01% at 0752 GMT, not far from a two-week low of 4.979% struck on Wednesday before yields rose later in the day.
Most economists polled by Reuters have long expected the BoE to keep rates unchanged at 3.75% this year, but financial markets have generally expected an increase — a difference which Governor Andrew Bailey said reflected markets’ pricing in of the risk of an intensification of the U.S.-Iran war.
Data last week showed British inflation rose to 2.9% in July due to higher household energy bills, while the labour market – the main source of Monetary Policy Committee members’ longer-term inflation worries – remained muted.
Investors are also closely focused on what message Federal Reserve Chair Kevin Warsh will deliver at an annual gathering of central bankers on Friday in Jackson Hole, Wyoming.
(Reporting by David Milliken; Editing by Kate Holton)
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