Traders have fully priced in expectations of two interest rate hikes by the Bank of England this year.

Traders have increased their bets on a rate hike by the Bank of England, after officials stated they are "prepared to take action at any time" to address the potential inflation surge caused by the Middle East conflict. The forward market currently expects a tightening of monetary policy by around 60 basis points before the end of the year, which means there would be at least two rate hikes of 25 basis points each, with a 40% probability of a third rate hike. The Bank of England's Monetary Policy Committee, comprised of 9 members, unanimously voted on Thursday to keep the interest rate unchanged at 3.75%. Governor Andrew Bailey warned that policy must "address the risk of more prolonged impact on UK CPI inflation." This repricing led to a sharp drop in UK government bonds, with the yield on the two-year bond rising by 24 basis points to 4.34%. The pound rose by 0.4% to $1.3310.