For the first time since 2009, traders expect the Bank of England to raise its key interest rate above 1% next year.

According to sterling overnight index swaps, money markets are currently pricing 100 basis points of policy tightening from the Bank of England in December 2022. The BoE rate would rise to 1.25% from the current 0.25%.

The Bank of England can and should do more to encourage lending | Financial  Times

The bets come after policymakers surprised the market by raising rates last week, boosting traders' confidence in a steeper rate hike series next year. The BoE is under pressure from rising natural gas costs, which are pushing market-based measures of anticipated inflation higher.

The outlook for tightening comes as data suggests the UK economy was losing steam before supply constraints and the emergence of the Omicron variant of coronavirus. While Prime Minister Boris Johnson has said that no more virus restrictions will be imposed before Christmas, officials may decide to do so after December 25.

It's not the first time that traders have gotten ahead of officials by betting on a faster tightening cycle. Policymakers have complained about poor liquidity muddying the signal from interest-rate markets, which is exacerbated this time of year by thin end-of-year trading conditions.