© Bloomberg. Pedestrians walk near the Bank of England in London, U.K., on Thursday, May 6, 2021. The U.K.’s economic rebound from the pandemic is already fueling speculation that Bank of England policy makers this week will start discussing how and when they can ease their foot off the stimulus pedal.
Traders are betting the Bank of England will raise its key rate to 0.5% by the end of this year after Governor Andrew Bailey moved to strengthen the case for tighter policy over the weekend.
Money markets priced in 40 basis points of tightening for the BOE’s December 2021 meeting, according to sterling overnight index swaps, up from around 20 basis points on Friday. They see the bank rate rising to 1.25% by the end of 2022.
Speaking to an online panel organized by the Group of 30, Bailey said the central bank will “have to act” to curb inflationary forces. A combination of higher energy costs, supply chain disruptions and rising wages in some industries has undercut the BOE’s original view that much of the jump in prices will prove transitory.
U.K. two-year government bond yields jumped as much as 17 basis points to 0.75% before paring the move.
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Traders Bet the BOE Will Raise Its Key Rate to 0.5% This Year
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