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As for the remaining probability, it favors a 50 basis points shift. It should be noted that these probabilities were, at one point in time yesterday, approximately reversed following the release of the UK’s strong inflation figures, as illustrated here.

Therefore, individuals anticipating a more aggressive move by the BOE may be let down by a 25 basis point adjustment. Nevertheless, if Bailey and colleagues prepare a more hawkish language before August, there may be some flexibility.

At present, the upcoming two meetings have approximately 67 basis points of rate increases factored into them. This implies that there is a chance for a 50 basis point rate hike at one of these meetings (today or in August). Therefore, if policymakers are advocating for tighter policies, it might not be as discouraging for those who support the pound.

Conversely, if the BOE unexpectedly increases the bank rate to 5.00% by 50 basis points, it would be a huge letdown for those who were expecting a more cautious approach to policy. This could cause UK rates and the value of sterling to rise abruptly, while stocks would likely experience a significant setback.

This shows how the OIS rates curve for the BOE bank rate has changed from before the CPI figures yesterday to now, in anticipation of the BOE meeting today.

Traders noticed an increase in rates for a longer period, with the highest expected bank rate peak being 5.93% in March 2024. This is higher than the 5.83% predicted earlier this week, but less than the 6.01% forecasted immediately after the CPI figures were released. As previously mentioned, this development occurred yesterday.

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