Market participants tell the Bank of England a rate rise is already priced
Victoria Shinder2 min readThe Bank of England has published minutes of the 24 September meeting of its Market Participants Group, a senior forum in which people from financial markets share their views with members of the Monetary Policy Committee. The Governor opened by stating that the MPC was there in listening mode, so the minutes record what market participants said, not what the Bank thinks.
On the September MPC decision, participants agreed that the macroeconomic outlook, together with the Committee's communications, was consistent with market expectations that Bank Rate may need to be raised. They noted that expectations of rate increases were visible in the shape of the market curve, alongside risk premia, and linked the relationship between energy prices and market rates to the uncertain global environment.
The longer part of the discussion was about global bond yields. Participants attributed part of the repricing to the resilience of major economies to the energy shock, which pushed up expected policy paths. They debated the role of technical factors such as unwinding positions, and pointed to the supply of long-dated debt, including issuance by the large cloud and AI companies known as hyperscalers. They also discussed how much of the recent rise reflects real rates rather than inflation compensation. Finally, participants welcomed the multi-year plan announced for unwinding the gilts held for monetary policy purposes, saying it made the process more transparent and predictable.
What it means
The minutes do not reveal the MPC's intentions, and are careful not to. Their value is as a record of what the market believes the Bank has told it: that the next move in Bank Rate is more likely up than down, and that this is already in prices. That matters for sterling because a move that is fully priced tends to have little effect when it happens; the surprise would be a decision that departs from the curve in either direction.
The comment on hyperscaler issuance is the less familiar point. Technology companies borrowing heavily to build data centres now appear in the Bank's own forum as a source of duration supply that competes with government bonds for the same investors - a factor that can lift yields independently of central bank policy. Participants' approval of the gilt sales plan fits the same theme: in a market already absorbing more long-dated paper, predictability about official sales is worth something.