LONDON (Reuters) – Investors added to bets on Bank of England interest rates cuts and short-term government bond yields hit a three-month low as global markets reeled on Monday after U.S. President Donald Trump’s announcement of import tariffs on trading partners.
Interest rate futures were pricing about 81 basis points of reductions to the BoE’s Bank Rate by December this year at 1039 GMT, compared with 75 bps – which represented a full pricing of three quarter-point rate cuts – on Friday.
The chance of a quarter-point BoE rate cut on Thursday, after its February Monetary Policy Committee meeting, was seen as a 94% probability, also up from Friday.
Hetal Mehta, head of economic research at wealth management firm St. James’s Place, said Trump’s announcement of tariffs on goods from Canada, Mexico and China could add to concerns among some MPC members about the risk of a UK economic slowdown.
“Any further weakness in the euro area economy will likely spillover to the UK,” Mehta said. “For some MPC members, the case for a pre-emptive cut may be enhanced.”
Yields on short-term British government bonds hit their lowest since just before finance minister Rachel Reeves’ budget announcement on Oct. 30 which included extra borrowing and tax increases for businesses that have weighed on corporate hiring.
Two-year gilt yields fell to 4.113%, the lowest since Oct. 25 and down about 8 basis points, before rising slightly later. Ten-year yields touched their lowest since Dec. 16 at 4.463%.
(Writing by William Schomberg and Suban Abdulla; editing by Sarah Young and David Milliken)
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