TRADERS BOOST BOE BETS, PRICE THREE QUARTER-POINT HIKES IN 2026

Traders have increased their expectations for Bank of England tightening, now pricing in three quarter-point rate hikes by the end of 2026, reflecting a shift toward a higher-for-longer interest rate outlook. This repricing is being driven by persistent UK inflation resilience and stronger-than-expected wage growth, which are reducing market confidence that the BOE can safely cut rates in the near term. The shift in rate expectations is most directly impacting UK government bond yields and the pound, with two-year gilts particularly sensitive to changes in monetary policy outlook. A key catalyst to watch will be the upcoming Labour market and CPI reports, which could reinforce or challenge the current inflation narrative guiding BOE policy assumptions.

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