Easing Tensions: Ceasefire Sparks Revised UK Interest Rate Forecasts
As the US and Iran agree to a two-week ceasefire, City traders cut their predictions for UK interest rate rises in 2026, with just one hike now expected by December.
The unexpected ceasefire agreement between the United States and Iran has led to a significant shift in market forecasts for UK interest rate movements in 2026. City traders have now revised their predictions, with the money markets fully pricing in only one rise in the Bank of England's base rate by December, taking it back up to 4%. This is a notable change from earlier this week, when two rate hikes were fully anticipated.
The change in outlook comes after Donald Trump had threatened that a "whole civilisation will die" unless Tehran complied with his demands to reopen the Strait of Hormuz. The sudden de-escalation of tensions between the US and Iran has had a significant impact on financial markets, leading to a more dovish stance on UK monetary policy.
Source: The Guardian
