Rate rises return

The continuing re-escalation of military strikes in the Gulf has pushed market expectations for rate hikes back up with the three main central banks now all priced to hike before year end, with the Bank of England and ECB priced to hike again in Q1 2027.

• Oil hit $90 for the first time in six weeks, having been down to nearly $70 just three weeks ago. So, just as central bankers were starting to talk inflation worries down, they have ratcheted back up, and hence the market pricing the hikes in again.
• UK GDP saw a 0.1% monthly increase in May, matching forecasts, but the 3-month growth rate came in slightly higher than the 0.5% expected at 0.7%, and the annual rate grew from 1.1% in April to 1.3% in May. These figures gave an unexpected boost to sterling, pushing it to its highest level in a year.
• US consumer inflation data for June has capped the expectation for rate hikes by the Fed however. June’s headline number contracted 0.4% on the month – the first monthly decline in two years and the most severe since the COVID-hit drop in April 2020 – while the annual rate fell from 4.2% to 3.5%, below expectations of 3.8%. The core measure also cooled, flat on the month, and slowing from 2.9% to 2.6%, with both services and goods contributing similar effects.
• US PPI data supported those consumer figures, declining 0.3% in June, pushing the annual increase rate down to 5.5% from 6% last month, versus market consensus for it to have gone higher. For now, the secondary impacts of oil price inflation are not being seen, hence the fewer hikes by the Fed being priced in for now.
• Chinese growth dropped to 4.3% in Q2 2026, the country's weakest annual growth since Q4 2022, and below the government's target of 4.5% to 5%.

Source: Bloomberg; pricing as per 21 July 2026

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