UK interest rate futures now price in 46 basis points of rate cuts by the Bank of England for the remainder of 2025, marking a notable shift from the 39 basis points anticipated before the latest labor market data release. The revised expectations reflect growing market conviction that the UK central bank will adopt a more dovish stance amid emerging signs of economic softening.
The adjustment follows weaker-than-expected employment figures, which showed the unemployment rate rising to 4.4% in the three months to April – the highest level since late 2021. Market participants have increasingly priced in a potential August rate cut, with money markets now assigning nearly 70% probability to a 25 basis point reduction at the next MPC meeting, up from about 50% prior to the jobs report.
This repricing suggests traders believe the BOE may front-load its easing cycle, with two full 25 basis point cuts now seen as likely by year-end. The changed outlook comes despite UK inflation remaining above target at 2.3% in April, indicating markets expect policymakers to prioritize supporting growth as labor market conditions deteriorate.
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