Traders boost Bank of England rate bets, favor two 25bps hikes by year-end
Money markets have flipped from pricing in cuts to expecting the BoE to raise rates twice, driven by sticky inflation and geopolitical energy shocks
Just a few months ago, the consensus was that the Bank of England would spend 2026 gently easing rates downward. That consensus is now dead.
Money markets have done a full U-turn, pricing in two 25-basis-point rate hikes before December. The Bank Rate, currently sitting at 3.75%, could climb to 4.25% if traders are reading the tea leaves correctly.
What changed and why it matters
The pivot traces back to a familiar villain: inflation that refuses to cooperate. UK inflation recently printed at 2.8%, meaningfully above the BoE’s 2% target. Earlier this year, markets were forecasting one to two rate cuts. Now they’re forecasting the exact opposite.
The culprit behind the inflation stubbornness is largely energy prices, which have spiked in the wake of the US-Iran conflict. Geopolitical tension pushed oil higher, oil pushed energy costs higher, and energy costs pushed the UK’s inflation readings further from where the BoE wants them.
On July 2, MPC member Catherine Mann signaled a willingness to back rate increases if inflation data continues to flash warning signs. The probability of a hike at the next meeting has climbed to roughly 50%.
The BoE’s Monetary Policy Committee last met on June 18, voting 7-2 to hold rates steady at 3.75%. Two members already wanted to move, and Mann’s recent comments suggest the hawkish camp may be growing. The next MPC decision lands on July 30.
What this means for crypto and risk assets
Rate hikes are generally bad news for risk assets. Higher rates mean higher borrowing costs, less liquidity in the system, and a stronger incentive to park money in safe, yield-bearing instruments rather than speculative plays.
The British pound is the more immediate variable to watch. Higher rate expectations typically strengthen a currency, as foreign capital flows in to capture better yields. A stronger pound relative to the dollar could create interesting dynamics for UK-based crypto traders, effectively making dollar-denominated assets like Bitcoin and Ethereum cheaper in local terms.
If the July 30 MPC meeting delivers a surprise hike, expect some turbulence in risk assets broadly. The 50% probability of a July hike suggests the market is genuinely uncertain, and the positioning adjustments ahead of July 30 could generate outsized moves in both directions.