Traders eye further rate hikes after first BoE increase in three years
TLT•Traders raised bets on further UK rate hikes after the Bank of England increased borrowing costs, with markets pricing in 76 basis points of tightening by the end of 2027 and a 50% chance of a December hike. The BoE’s committee voted 8-1 to raise rates, while inflation is projected to reach around 5% in mid-2027.
1. Rate expectations rise
Traders added to bets on UK rate hikes and sold government bonds after the Bank of England raised borrowing costs for the first time since 2023. The Monetary Policy Committee voted 8-1 to increase rates, with Catherine Mann voting for a larger, 50-basis-point rise. The 10-year government bond yield was up 3 basis points at 5.17%, and the two-year yield rose 4 basis points to 4.79%.
2. Inflation outlook uncertain
The BoE projected inflation would reach around 5% in mid-2027, after September inflation came in at 3.5%, above its 2% target. Governor Andrew Bailey said the outlook was uncertain and that inflationary pressure remained in the pipeline. He said another increase seemed unlikely to be the last if the Middle East conflict continued, while stressing the rise should not be viewed as the start of a sequence.
3. Markets weigh oil prices
Money markets priced in around 76 basis points of further tightening by the end of 2027, up from roughly 67 basis points before the decision, and a 50% chance of a December hike, versus around 30% previously. Oil prices were down around 16% for the week after the US midterm elections, complicating the outlook for global rates. The pound was little changed at $1.347, while the FTSE 100 traded 0.3% higher.
