UK markets price in four rate hikes by July 2027
In the United Kingdom, money markets are pricing in four 0.25-percentage-point increases in the Bank of England’s base rate by July 2027. Under this scenario, the rate could rise from the current 3.75% to 4.75% in less than 12 months.
As OilPrice reports, citing City A.M., expectations strengthened after data showed an unexpected 0.4% increase in UK GDP in July. Economists had previously forecast no economic growth.
Bank of England decision
Economists expect the Bank of England’s Monetary Policy Committee to leave the rate unchanged at its meeting next week. At the same time, Wealth Club chief investment strategist Susannah Streeter said that stronger-than-expected GDP data had made a rate increase before Christmas somewhat more likely.
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Berenberg economist Andrew Wishart believes the data indicate that the economy can withstand a one-off 25-basis-point rate increase. In his view, this raises the likelihood of such a Bank of England decision in November or December, although broader evidence of sustained growth is needed for this.
Energy costs and bonds
Streeter called a possible acceleration in price growth due to higher energy costs a risk. She noted that amid tensions in energy and debt markets, there are expectations of three to four rate increases over the next year.
On Friday morning, the yield on 10-year UK government bonds fell by two basis points to 5.351%, after reaching a 19-year high the previous day. Brent oil fell by more than 2.5% that same morning to below $105 per barrel, although it had risen earlier in the week.
