Investor expectations for the next Bank of England rate hike have shifted into early 2027, as British government bond yields extended a gradual decline following a brief interruption earlier in the week. By Thursday, markets priced in just 24.3 basis points of tightening by the December 17 policy meeting, down from more than 25 basis points for most of August, according to LSEG data.
The shift reflects a broader reassessment of the BoE’s policy trajectory, with only 36 basis points of tightening now anticipated by the February 4 announcement. For the September 17 meeting, less than 4 basis points of tightening is priced in, implying a 15% chance of a hike. British 10-year government bond yields fell to 4.979% on Wednesday—a two-week low—before rising 2 basis points to 5.01% by 0752 GMT on Thursday.
BoE Governor Andrew Bailey attributed the divergence between economists, who largely expect rates to remain at 3.75% through the year, and market pricing to geopolitical risks, specifically the potential escalation of the U.S.-Iran conflict. The labour market’s muted conditions continue to weigh on the Monetary Policy Committee’s longer-term inflation concerns, he noted.
The European Central Bank’s September 10 decision saw 24 basis points of tightening priced in, highlighting a similar but less pronounced shift in expectations compared with the BoE. Investors are also awaiting remarks from Federal Reserve Chair Kevin Warsh at the Jackson Hole symposium, scheduled for Friday, which may further influence global rate expectations.
