Markets See Potential for BOE Rate Cuts After a Chaotic Week

(Bloomberg) -- For investors, Bank of England interest-rate cuts are back on the table.

After a week that saw more turmoil in the Brexit process, the Federal Reserve put its tightening plans on ice, the U.S. Treasury yield curve invert and German yields go negative, traders are now pricing in a greater chance of a rate cut, rather than a hike, at every BOE meeting this year.

While markets still see a slim chance of such a move, it’s a dramatic change from the start of the week, when they were pricing in an almost 50 percent chance of a hike by the end of 2019. The pessimism has also extended to the U.K.’s bond market, where the yield on 10-year gilts is on the verge of dropping below 1 percent for the first time since 2017.

The market’s outlook contrasts with that expressed by BOE officials, who on Thursday said that they still see the need for limited and gradual rates over coming years should the economy behave as forecast. Policy makers have also said that a no-deal Brexit could see rates move in either direction, although a number of policy makers have hinted they would be more likely to cut in such a scenario.

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net;John Ainger in London at jainger@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint, Neil Chatterjee

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