Traders are anticipating a rise in borrowing costs from the BoE by the end of the year, as two officials moved to reinforce signs of an impending increase to combat inflation.

Money markets have priced in at least 15 basis points of tightening by the BoE's December 2021 meeting on Monday, taking the key rate to 0.25%. Previously, the market predicted that the first increase would occur in February.

The repricing reflects growing worry about the long-term effects of the recent price spike, with customers facing higher energy and goods costs, owing in part to supply shortages resulting from the country's exit from the EU. Last week, a market-based gauge of inflation in ten years increased to more than 4%, more than double the BoE's target.

How the Bank of England is modernising its systems for the future | Computerworld

The BoE "appears concerned about inflation credibility," according to Robert Wood, the BoA's UK economist, who added that policymakers will "raise early" to avoid further hikes later. In line with market expectations, BofA predicts a 15-basis-point increase in December, followed by another 25 basis points in February.

By August, money markets expect another quarter-percentage-point raise, bringing the key rate to 0.75%, even as some investors warn that raising interest rates could damage the UK's fragile recovery from the pandemic.

"We perceive the BoE jawboning in an attempt to prevent inflation expectations from becoming entrenched," said Richard McGuire, Rabobank's head of rates strategy. "It seems incredible that the BoE would raise borrowing costs as we approach Christmas."

Higher energy prices, supply chain disruptions, and rising salaries in some industries have undercut the BoE's initial prediction that much of the price increase would be temporary. Last month, the central bank predicted that inflation would exceed 4% in Q4.