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With the UK economy looking worse by the day, traders are less confident in the Bank of England's ability to raise rates.
Money markets were signaling 100% certainty in a more aggressive approach to tackle inflation just a few weeks ago. The picture is cloudy now. More strategists think 25 basis points is a better choice than 70%.
It is because of inflation and energy costs that more people will be in poverty. According to the International Monetary Fund, Britain will have slower growth next year. A former BOE official thinks that the UK is in a recession.
Jamie Searle, strategist at Citigroup Inc., said that the choice for the BOE was to join the trend for upsizing or keep it boring.
The BOE promised in June to act forcefully if inflation continued. The UK's consumer prices have risen at the fastest pace in 40 years.
The benchmark rate is expected to increase by 25 basis points, taking it to 1.5%.
The head of UK rates strategy at NatWest and the chief UK economist wrote a letter cautioning against too aggressive policy tightening.
There is a snapshot of what is happening in the UK.
Expectations that the Bank of England will have to take a softer approach to monetary policy has led to a rally in bond prices. The yield on 10-year gilts fell for the first time in over a year. The two-year bond yield is about 60 basis points lower than it was a month ago.
A toughening economic outlook has aided the recovery of UK bonds.
There is a source for this.
Risk appetite is returning to markets as the pound bounces off a two-year low. Saimbi warns that the strength won't last long. If the hike is smaller than expected, she sees losses.
The pound is bouncing back after a long time.
There is a source for this.
July was the best month of the year for the index. The cost-of-living crisis will start to affect discretionary incomes as consumer stocks hold up relatively well so far.
Even though the outlook is not good, the FTSE 100 gets a boost.
There is a source for this.
There are concerns about the health of British businesses. The average yield on an index of sterling high-yield debt is the widest it's been since November 2020.
The yield premium of junk bonds has gone up.
There is a source for this.
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