For the first time since August, money-market wagers show a quarter-point rate cut is fully priced in by year-end. Rates are still expected to increase next month before peaking at around 4.5% in the summer.
The repricing comes after a string of economic data pointed to growth stalling and inflation easing, and shows the market is beginning to doubt that the UK central bank will be able to keep rates that lofty for long. The bank’s policy rate currently sits at 3.5%, the highest in more than a decade.
“We are turning more positive on the economic prospect for Europe, but still remain negative on the UK,” said Mohit Kumar, a rates strategist at Jefferies. “For the BOE, even if we get a 50 basis-point hike in February, it would be a dovish 50 basis points.”
Figures Wednesday revealed UK factory price inflation rose at the slowest pace in almost a year, following separate releases Tuesday that signaled weak services industry sentiment and factories curtailing production at record rates.
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