Traders expect the Bank of England to continue tightening monetary policy next year, despite the risks from the coronavirus.
Money markets are pricing a 1% increase in the Bank of England rate until December 2022, bringing the rate to 1.25%. The probability of a further rate hike increased after the Bank of England unexpectedly raised the rate from 0.10% to 0.25% at its December meeting. Experts note that politicians made this decision against the background of extremely high inflation in Britain, which reached 5%, and is likely to continue to rise in the near future.
Market participants, expecting a Bank of England rate hike in 2022, note that the new strain of the Omicron coronavirus probably will not be able to stop the UK's recovery, even despite signs of loss of momentum. However, if new restrictions are imposed to combat coronavirus after December 25, the economy may slow down even more.
In general, this is not the first time that traders are ahead of officials, betting on an accelerated cycle of policy tightening. However, this time the signal from the markets may be distorted by low liquidity at the end of the year.