(Bloomberg) -- Money markets are wagering that the Bank of England will raise its key rate to 0.5% next year from 0.1% currently, likely in two installments.
Traders now see an additional quarter-of-a-percentage-point of tightening by December 2022, on top of a 15-basis-point hike that was already priced for May.
The shift in market expectations follows a change in forward guidance from the BOE last month as it foresees some “modest tightening.” Governor Andrew Bailey said he is among officials who think a minimum criteria for tighter U.K. monetary policy has been met in comments made last week.
It’s a sharp turnaround from the second half of last year, when traders were contemplating rates of as low as minus 0.1% after the central bank said it was studying the feasibility of such a move. They only removed bets on further loosening in February, when policy makers stressed that negative rates are not imminent amid the U.K.’s successful vaccine rollout.
While the central bank traditionally shifts its key interest rate by multiples of 25 basis points, it last cut rates by 15 basis points in March 2020, at the height of the coronavirus pandemic. If officials wanted to raise rates, a move back to 0.25% is seen by strategists as the likely first step.
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