Market pricing misjudgment? Barclays predicts unexpected rate cut by the Bank of England next week.

Barclays Bank pointed out that traders are currently underestimating the possibility of a rate cut by the Bank of England at the upcoming meeting next week, which is the latest warning from the bank against the market's general belief that policy makers will maintain borrowing costs unchanged. Barclays strategist Mohan Islam wrote in a report that the current pricing of a rate cut in the money markets is only at a 25% probability, which "does not align with the reality that this could be a finely balanced decision." Barclays economists expect the Monetary Policy Committee to support a rate cut of 25 basis points by a vote of 5 to 4, bringing the interest rate down to 3.75%. Goldman Sachs and Nomura International also predict an imminent rate cut. Due to lower-than-expected inflation data in September, swap contract traders have increased their bets on a rate cut. The key concern for policymakers - the rise in food prices - is also slowing down. Meanwhile, the critical swing voter and Governor of the Bank of England, Andrew Bailey, has expressed concerns about the UK economy operating "below potential levels" and the weakness in the job market. Traders have increased their bets on a rate cut by the Bank of England in November. Expectations of a rate cut have boosted UK government bonds, which are set to have their best monthly performance in nearly two years. Meanwhile, the pound fell to its weakest level against the euro since 2023 on Wednesday and could record its longest monthly decline in nine years. Certainly, the current inflation rate is still nearly double the Bank's target level, and most other strategists expect the Bank of England to at least postpone until December, waiting for the release of next month's budget and more employment and inflation data before taking action. However, Islam believes that policy makers have sufficient reasons to push for a rate cut, and the current market pricing makes betting on this move "attractive in terms of risk-reward."