Investors’ bets on where UK interest rates will peak have shot higher over the past month, prompting an attempt by Bank of England governor Andrew Bailey to stop markets getting carried away.
Futures markets are currently pricing in a jump in the BoE’s interest rate to just above 4.6 per cent by December. At the start of February, rates were expected to peak at around the current level of 4 per cent and fall slightly by the end of the year as investors worried that the UK was heading into a recession.
That is despite a more mixed bag of UK economic data in recent weeks. Although headline inflation remains in double digits, domestic core inflation — which strips out volatile food and energy prices — declined more than forecast to 5.8 per cent in January from 6.3 per cent the previous month. Business surveys for February, by contrast, showed a faster than expected pick-up in activity.
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