LONDON (Reuters) - Expectations of a UK interest rate increase in May has shrunk to around 40 percent from 70 percent earlier this week after Bank of England Governor Mark Carney dampened widespread expectations of a hike next month.
Bond markets are now only pricing in about 10 basis points of rates hikes in May from 17 basis points earlier this week, according to estimates derived from the swap markets.
Because the BoE generally raises interest rates in increments of 25 bps, this suggests expectations for a rate hike in May are around 40 percent.
Sterling took another leg down on Friday to $1.4060 after falling nearly 1 percent in the New York session after Carney said that a rate hike this year was “likely”.
A firm majority of economists in a Reuters poll this week said they expect the BoE will raise interest rates to a new post-financial crisis high of 0.75 percent in May.
Reporting by Saikat Chatterjee; Editing by Abhinav Ramnarayan