(Bloomberg) — Money markets are adding to bets the Bank of England will keep interest rates on hold at 4% for the rest of this year as signs of faster inflation and a more resilient economy reduce the case for more easing.
On Monday, traders decreased wagers on another quarter-point rate cut this year, with swaps at one stage implying a less than 50% chance of such a move. A reduction was fully-priced earlier this month.
The move comes before inflation data due Wednesday is forecast to show the headline rate increased to 3.7% in July. The BOE forecast a peak of 4% in September, double the bank’s target.
Bets on easing have been pared since an unexpectedly hawkish BOE meeting in August. While officials cut rates by 25 basis points, four Monetary Policy Committee members voted against the move, raising questions over whether the bank would stick to a quarterly pace of cuts for the rest of the year.
Since then, stronger data has added to the case for caution. A report last week showed gross domestic product rose 0.3% in the second three months of the year, beating the 0.1% forecast by both private-sector economists and the BOE. That follows a release days earlier showing the jobs market is performing better than analysts had feared.
The change in outlook for BOE policy is boosting the pound. Sterling is the best performing G-10 currency against the dollar this month, rising 2.5%.
(Updates with additional context.)
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