The financial markets expect fewer rate cuts from the Bank of England this year due to the Middle East conflict and associated spike in energy prices, according to real estate consultancy Knight Frank.
Before the development soft employment figures and signposting from the Bank about keeping inflation under control meant multiple rate cuts felt more likely.
However, Michael Brown, research analyst at Pepperstone, reckons the markets are overreacting.
He said: “The two-year swap is at its highest level since November, and the five-year swap is the highest it has been since January.
“I think the market has lurched too far in one direction and will probably slowly but surely lurch back in the other.
“The market was pricing in two cuts this year and it’s now pricing in one, but I still think we’ll get three.”
He added: “The labour market is still very weak, demand is still pretty soft in the broader economy and inflation is on its way back to the 2% target, even if we have a little bit of a blip.
“For markets to price back in two or more cuts, the first thing we need to see is energy prices coming back down.
“The second is more data of the kind we were getting earlier this year, pointing to a soft labour market and relatively anaemic growth.”
