Bank of England likely to raise interest rate next year

Bank of England likely to raise interest rate next year

Bloomberg - Money markets are betting that the Bank of England is likely to increase its key rate from 0.1% to next year, likely in two installments.

Traders now view an additional quarter of a-percentage point of tightening by December 2022, on top of a 15 basis-point hike that was already priced for May.

The shift in market expectations follows a change in the forward guidance by BOE last month as it foresees some modest tightening. Governor Andrew Bailey said he is one of the officials who think a minimum criteria for tighter U.K. monetary policy has been met in comments last week.

It s a sharp turnaround from the second half of last year when traders were contemplating rates of as low as minus 0.1% when the central bank said it was studying the feasibility of such a move. They only added bets on further loosening in February when policy makers stressed that negative rates are not imminent amid the U.K s successful vaccine rollout.

While the central bank traditionally reduces its key interest rate by multiples of 25 basis points, it last moved rates by 15 basis points in March 2020 at the height of coronavirus pandemic. If officials wanted to raise rates, a move back to 0.25% is seen as the likely first step by strategists.