(Bloomberg) --

Traders are betting the Bank of England will raise interest rates again next month to curb inflation running at the fastest pace in 30 years.

Money markets ramped up rate-hike wagers to price in a quarter-percentage point increase in February, which would bring the bank rate to 0.5%. They also see the rate rising to 1% in June from August previously.

The repricing comes after Federal Reserve Chair Jerome Powell endorsed interest-rate liftoff in March, fueling speculation over more aggressive tightening than previously anticipated. In the U.K., consumer prices unexpectedly surged 5.4% from a year ago in December, piling pressure on officials to act. 

The move would follow a surprise 15-basis-point increase in December, making it the first back-to-back hike since 2004. And it would open the door for the BOE to start shrinking its balance sheet by stopping the reinvestment of expired bonds, starting with 28 billion pounds ($37.6 billion) of gilts maturing in March.

The BOE’s Next Move Is About More Than an Interest-Rate Hike (1)

While the BOE’s rate increase in December caught economists and traders off-guard, expectations for further monetary tightening are growing as the outlook for consumer prices darkens. Investors are betting that a February rate hike will be followed by another three increases by the end of 2022, taking the key rate to 1.25%.

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