Traders are betting that BOE will cut rates before the end of the year to support the economy

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(Bloomberg) – Traders are warning that the Bank of England will reverse course and cut interest rates later this year to boost a flagging economy.

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Money market bets show that a quarter-point rate cut is fully priced in by the end of the year after a flurry of economic data pointed to slowing growth and easing inflation.

Figures on Wednesday showed that UK factory price inflation rose at the slowest pace in almost a year after separate releases on Tuesday showed weak sentiment in the services sector and factories curtailing production at record rates.

Read more: UK recession risks grow with record deficit and falling output

Market prices still imply a half point hike against the BOE next month, with the rate peaking at around 4.5% over the summer. But bets on an interest rate cut in 2023, made for the first time since August, are raising some doubts that the UK central bank will be able to keep rates high for long. .

“We are more positive on the economic outlook for Europe but remain negative on the UK,” said Mohit Kumar, rates strategist at Jefferies. “Even if we get a 50 basis point increase for the February BOE, it will be a more conventional 50 basis points.”

The end of rate hike cycles is imminent for many central banks in developed countries, prompting speculation by market participants about the likely course of monetary policy beyond the top rate. Economists have argued that the BOE may be slower to cut rates than its peers, with factors such as labor shortages holding back inflation.

Rate cut bets helped UK bonds outperform their German counterparts for a fifth session, with 10-year gilt yields down five basis points to 3.22%. The BOE is scheduled to meet next week together with the Federal Reserve and the European Central Bank.

–With support from Libby Cherry.

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