A market measure of expectations of UK inflation over the next decade is more than 4 per cent, boosting bets on monetary tightening by the central bank.
At one point, the UK's 10-year break-even inflation rate climbed 10 basis points to 4.08%, the highest level since 2008.. The reason for this is that UK natural gas prices have soared to record highs, which is likely to exacerbate the upward trend in consumer prices.
Accordingly, money markets have almost fully digested the Bank of England's expectation of an interest rate hike as early as December, which would be the first increase in three years.
Money markets now expect the Bank of England to raise interest rates by 15 basis points in February and 0.25 percentage points to 0.5 per cent in May. They expect the chances of raising interest rates by 15 basis points in December to be close to 100 per cent.