Interest rate traders are betting that the era of easy money in Europe is firmly over. Market pricing now suggests both the European Central Bank and the Bank of England will deliver as many as four rate hikes by the end of 2027, a meaningful shift in expectations driven by stubborn inflation and a geopolitical backdrop that refuses to cooperate.
The ECB’s deposit rate currently sits at 2.25% following a hike in June 2026, while the BOE has held its Bank Rate steady at 3.75% through several consecutive meetings.
What the markets are pricing in
For the BOE, swap markets are reflecting roughly 53 basis points of tightening by December 2027. That’s not quite four full 25-basis-point hikes, but it’s close enough that traders are clearly positioning for a sustained tightening cycle rather than a one-and-done adjustment.
The BOE’s own July 2026 Monetary Policy Report projected a high probability of two rate hikes by the third quarter of 2027. Markets, though, are running ahead of that guidance.
