UK interest rate predictions fall as US and Iran agree two-week ceasefire

UK rate expectations have been sharply repriced lower after the US and Iran agreed a two-week ceasefire, with money markets now fully pricing just one BoE hike by December to 4.0% versus two hikes on Tuesday and as many as three hikes priced in during March. The move followed a 13.3% drop in Brent to $94.71/bbl in morning trade, down from $109 before ceasefire hopes emerged, easing the immediate inflation shock from Middle East energy disruption. For precious metals, the main read-through is softer near-term inflation pressure and a lower path for UK rates if the truce holds, which would temper some of the recent hawkish repricing across rates markets. IG’s Chris Beauchamp said only 32bp of hikes are now expected this year, down from 62bp yesterday, though he warned the 'heady days' of expected rate cuts are unlikely to return soon. Moneyfacts said the average two-year fixed mortgage has climbed to 5.90%, the highest since July 2024, and may stay elevated even if swap rates ease. ECB pricing also cooled, with the market now expecting two eurozone hikes this year versus three last month.