Ignore bond market turmoil, traders are betting that the Bank of England will cut interest rates five times this year.

Notice that some traders are betting heavily on the Bank of England cutting interest rates this year, despite concerns about sticky inflation and budget deficits causing UK bond yields to soar. Data shows that if policymakers cut the benchmark interest rate to 3.5% by the end of the year, using options contracts linked to interest rate futures, this bet could potentially yield four times the initial premium of around 3 million ($3.7 million). This bet is equivalent to five rate cuts of 25 basis points each, while current market pricing only reflects two rate cuts of 25 basis points. Traders have tempered their expectations of rate cuts due to concerns about Chancellor Rishi Sunak's policies potentially worsening inflation. Before she announced her latest budget in October of last year, traders were betting on the possibility of five rate cuts this year. The UK market has been turbulent this week, with 30-year UK bond yields reaching their highest level since 1998 driven by Trump's tariff threats and signs of rising inflation expectations. This has raised concerns for the Labour government, who were hoping investors would buy bonds in near-record amounts in this fiscal year. The cautious stance at the start of 2025 is in stark contrast to a year ago, when traders were predicting six rate cuts in 2024, but policymakers ultimately only cut rates twice.