Traders have raised their bets on further Bank of England tightening and now see a 50% chance of a rise in December. That reverses the retreat in rate expectations since late October.

The Bank's Monetary Policy Committee voted 8 to 1 to lift Bank Rate by 0.25 percentage points to 4%. One member wanted a half-point rise to 4.25%. The Bank now expects UK consumer price inflation to reach around 5% by the middle of next year, and says the pressure in the pipeline justifies the increase. Its September projections had inflation peaking above 4% in early 2027.

The committee's hawkish wing, Mann, Lombardelli and Pill, was already pressing for more tightening, and a higher inflation forecast gives it more to argue with.

That matters beyond sterling rates. In late October a softer bank tax outcome and a wage survey showing no inflation premium pulled the 30-year gilt yield down to an August low near 5.65%. The 10-year gilt yield fell to its lowest since September 2023. The fall had eased the strain in long-term borrowing costs that earlier this autumn pushed gilts to 1998-era highs. That strain came from investors demanding more extra yield for holding long bonds, known as the term premium.

Renewed pricing of a December hike risks reopening that channel. If UK yields resume climbing, long-dated Treasurys could come under pressure too.

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