By mid‑morning, the tone had changed. After Donald Trump instructed US defence officials to postpone airstrikes on Iranian energy infrastructure for several days, the immediate geopolitical risk premium built into global bond markets eased. UK rate markets retraced part of their move, with investors then pricing in only two quarter‑point rises, implying a year‑end Bank Rate of about 4.25% rather than 4.75%.
The gap between market pricing and economists’ forecasts has widened. Until the latest jump in gilt yields, many forecasters argued that the Bank was at or near the peak of its tightening cycle. Goldman Sachs told clients last week that it did not expect any rate rises this year, saying the MPC was likely to leave the Bank Rate at 3.75% throughout 2026. Other analysts have questioned whether talk of four increases was ever justified on the basis of the data, with some describing that scenario as overdone.
The Bank of England has attempted to keep its options open. Having left policy unchanged at its most recent meeting, the MPC signalled that it could yet be forced to act if the inflationary impact of the conflict in Iran and higher energy prices proves more persistent than forecast. Andrew Bailey, the governor, has also warned that markets may be running ahead of themselves in the scale of tightening being priced in.
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For the intermediary community, even after Monday’s reversal, rate expectations embedded in the swap curve still point upwards. The range of plausible outcomes now runs from no further moves at all, through one or two quarter‑point hikes, with the earlier flirtation with four increases looking more like a brief overshoot driven by geopolitical anxiety than a settled view.