In financial markets, a 25 basis point rate hike by the Bank of England is now fully priced in for the February 2027 Monetary Policy Committee meeting. According to LSEG data, as of the December 17 meeting, the market had priced in a 24.3 basis point increase in the policy rate, down from over 25 basis points for most of August. As of the February 4, 2027 meeting, a 36 basis point increase is priced in. For the September 17 meeting, the market has priced in a rate hike of less than 4 basis points, which translates to a mere 15% probability of a hike. Meanwhile, for the European Central Bank, a 24 basis point rate hike is priced in for the September 10 Governing Council meeting. The UK 10-year government bond yield fell 2 basis points to 5.01%. In a Reuters poll, most economists expect the policy rate to remain at 3.75% for the rest of the year, but financial markets have generally anticipated rate hikes. Bank of England Governor Bailey explained this discrepancy by noting that markets are pricing in the risk of an escalating Iran war.
Rate hike expectations pushed back to Feb 2027, with September probability at 15%, and 10-year yield fell 2bps to 5.01%.
