Rates Spark: UK interest rates and US Treasury International Capital data

Sterling Rates Face Shifting Economic Sentiment

Although sterling rates have dropped notably over the last month, changing perspectives on the economic outlook may counteract some of these declines. The labour market continues to show signs of weakness, yet Thursday’s monthly GDP report offered a glimmer of hope. The underperformance of 5-year rates compared to other maturities suggests that investors are becoming more optimistic about the business cycle. This sentiment has also led to a delay in expectations for the Bank of England to begin easing policy. In fact, the likelihood of a rate cut in March has decreased, with markets now factoring in only a minimal reduction. The upcoming week will be crucial for GBP rates as new inflation data is released.