Markets are wrong – the BoE won’t hike rates four times this year

Interest rate expectations have skyrocketed since the Middle East crisis began. But Paul Thomas is sticking his neck out - he thinks rate hike threats are a mirage.

Photo by Sue Winston on Unsplash

I’m aware that what I’m about to say could come back to haunt me. But markets are wrong – the Bank of England (BoE) is not going to hike rates four times this year.

In fact, they probably won’t go up at all this year.

The reaction to US military action in Iran has been swift and severe: swap rates have surged, driving average mortgage rates up by nearly 70 basis points and forcing lenders to pull over 1,000 deals.

Looking at the swaps curve, markets are currently pricing in three, maybe four interest rate increases this year. This is because markets are worried that the conflict in the Middle East will cause prices to spiral again here in the UK.

But that reaction rests on a fundamental misunderstanding of what would be behind any inflationary surge – and how the central bank is likely to respond.

If inflation were to rise again, energy pr…