According to interest-rate swaps tied to BoE policy dates, money markets are betting on less than 75 basis points of hikes next week, a sharp contrast from a month ago, when traders were betting on as much as two percentage points of increases. The bank rate is expected to fall below 5% next year, down from more than 6.25% last month.
Markets and most economists are expecting a 75 basis-point rate hike from the Bank of England on the 3rd of November. But we think a 50bp increase is narrowly more likely. More importantly, we think the Bank Rate is unlikely to go above 4% next year. And that suggests that markets are overestimating the amount of tightening still to come.