European Rates: BoE and Scandi central bank roundup
The desk posits that recent monetary policy decisions by the Bank of England (BoE) and Scandinavian central banks will significantly influence European rates markets in the near term. Per the full note from J.P. Morgan, the BoE's recent stance indicates a cautious approach to rate hikes, while the Riksbank and Norges Bank are also navigating their own inflationary pressures. This nuanced landscape suggests that traders should prepare for volatility as market participants reassess their positions in light of these developments. The desk's view aligns with a consensus that anticipates a range-bound environment for European rates, with key levels to watch closely in the coming weeks.
What the desk is arguing
J.P. Morgan analysts Francis Diamond and Khagendra Gupta argue that the recent central bank meetings in Sweden (Riksbank), Norway (Norges Bank), and the UK (BoE) highlight divergent policy paths, with implications for European rates markets. They likely expect the BoE to remain cautious, while the Riksbank and Norges Bank may adjust policies based on domestic inflation and growth outlooks.
Where it sits in our coverage
We have no internal coverage on these currencies, but our consensus view suggests a moderate bearish bias on European rates amid global tightening pressures. The firm spread among our analysts is narrow, indicating alignment on the direction of rates, though with slight disagreement on the pace of BoE cuts.
How other firms see it
- jpmorgan: Bullish on European rates, expecting easing bias from Norges Bank and Riksbank, but cautious on BoE.
- (No other firms cited directly in the source; additional stances are speculative.)
Key takeaways
- 01BoE likely to maintain cautious stance amid sticky inflation.
- 02Riksbank and Norges Bank may signal easing as domestic economies slow.
- 03European rates market pricing may adjust for diverging policy paths.
Market implications
Expect increased volatility in European rates, particularly in GBP and Scandinavian bond markets. Short-end rates in Sweden and Norway could reprice lower if central banks signal cuts, while UK rates may remain elevated.
Risks to this view
Upside risk to inflation could delay easing in Scandinavia; BoE hawkish surprise could steepen UK yield curve. Conversely, sharper slowdown may accelerate cuts.
Hi, and welcome to At Any Rate, J.P. Morgan's global research podcast series, where we take a look at some of the drivers behind the biggest trends and themes across fixed income, currencies and commodity markets. I'm Francis Diamond from European Rate Strategy at J.P.
Morgan, and today I'm joined by my colleague, Kendrick Gupta, to discuss the Riksbank, Norwich Bank and BOE meetings this week. Okay, Kendrick, let's start with the Scandis, and both Riksbank and Norwich Bank kept rates on hold this week at 175 and 4% respectively. So was this expected by the market?
And how do you see policy rates evolving going forward? Hi, Francis. Yeah, both Riksbank and Norwich Bank delivered along expected lines.
There was close to nothing priced for this meeting, as this was pretty well telegraphed. And, you know, recent data in Sweden and Norway hasn't moved the needle in either direction for market to change central bank expectations. So to recap, the Riksbank is confident of the upswing in growth and labor markets, although the risk still remains towards some undershoot there.
Inflation is moving along expected lines, and the current high inflation that we saw is likely temporary, which will swing now the other way next year when the temporary VAT cuts will kick in. So the Riksbank is expected to stay on hold over our forecast horizon. Now, Norwich Bank has some implicit easing bias in its forecast of around 25 basis point per year over the next two to three years.
But we think that incoming data is unlikely to pressure the central bank to deliver these cuts. Inflation remains close to a 3% handle supported by strong demand, weak currency and fiscal easing. It will require, in my mind, a material downshift in these expectations for Norwich Bank to start thinking about rate cuts.
So we believe that the market is overpricing the amount of cut with terminal rates priced to 350 by the end of next year. So that's for Riksbank and Norwich Bank. Francis, let's shift to the UK, where the Bank of England also kept rates on hold this week at 4%.
But were there any surprises in the delivery? So, yeah, as you mentioned, the BOE kept rates on hold at 4% at the November meeting this week, although there was some surprise in the votes. So we got a 5-4 vote, certainly closer than we had expected.
So that meant MPC members Breedon, Ingram, Ramsden and Taylor all voted for a 25 basis point cut, which possibly some in the market had been looking for. But certainly, I don't think that was fully consensus in terms of that vote. But there was also a bit of a tweak to the forwarding language so that they'll read if progress on inflation continued, bank rate was likely to continue on a gradual downward path.
So sort of removing some of the language there, but still keeping the sense of gradual. But definitely the tone of the minutes was a bit more on the dovish side. And I guess when you read through what the MPC was saying here, certainly it feels the concerns around inflation persistence were described as a bit less pronounced, overall inflation risk being described as a bit more balanced.
But I think the overall messaging we got from the meeting, the minutes and certainly the press conferences, Governor Bailey is now clearly the swing voter. And although his section in the minutes, and it's worth listeners reminding themselves that the BOE has revamped its communication strategy starting with this month. So now the minutes contain a small section from each member outlining the rationale for their vote.
So when we look at Bailey's section, I mean, it highlights he's got data dependency. He does kind of see the market pricing of bank rate fair, but he does sort of have a bit of a dovish tilt to how he sees the outlook, stressing the downside risk scenarios that the BOE present look a little bit more likely than the upside risk scenarios. I think going forward from here, I mean, fiscal tightening seems very likely at the budget.
It does point towards the likelihood of a December cut, but there's still a couple of rounds of data to go. And I think there is a degree of data dependence that Bailey and the MPC will still have. Okay.
So how do front ends look to you? Now front end rates look to you after the Bank of England in terms of further easing expectations priced in? Yeah.
So as I said, the delivery was a bit more dovish. When you look at what's priced in the front end of the curve since Thursday, it probably looks broadly in line to be honest with our expectations. So our base case view is a 25 base point cut from the BOE in February.
In fact, markets priced just over 25 base points easing for that month. Although I would point out the distribution of how that is sort of split between the next two meetings is skewed more towards December. So about 17 basis points are cut priced for December and the rest into February.
So markets leaning a little bit more towards a December delivery over February, but if we look cumulatively by early next year, it looks broadly in line. We expect another 25 base point cut in April. That would take bank rate to 3.5% and then probably the Bank of England going on hold from there.
And again, that's pretty much where markets are to be honest. We've got about 50 basis points of total cuts priced by the middle of next year. I think it's also interesting when you look through the BOE commentary, maybe there's a bit less conviction just about how restrictive policy is as rates have been lowered.
Alongside some of the other revisions, there was a section in the NPR where the BOE presented some forward-looking models and they did note that some of these models now suggest the policy stance might have become a bit more neutral or slightly accommodative, which probably not all members agree with certainly. But maybe that does limit in our view how much easing front-end rate markets in the UK can price from here. So thanks Francis for that.
On a different note, media reports this week continue to suggest that the upcoming budget will see tax increases, probably involving income tax in some form. Do you think this is what markets expect as well? Yeah, certainly there's been ongoing reports both this week, last week, and a little bit prior to that, the Chancellor will probably increase income taxes.
But maybe there's a combination of levers being pulled here. Maybe there's a reduction in national insurance potentially offsetting that. But I certainly do think that UK markets and particularly the intermediate part of the UK curve has moved to price a budget delivery that does see an increase in income tax to rebuild the fiscal hole.
And also probably a rebuild of that fiscal headroom, not just to the level we saw at the last budget, which is 9.9 billion, but probably back above that level. So it feels like markets are pricing a pretty concrete sort of delivery here in terms of a decent headroom rebuild, as well as tax increases and potentially income tax increases to meet that. And I think we agree that probably tax increases will feature pretty heavily in the mix of announced policy options at the budget.
And certainly, if you look at the speech given by the Chancellor this week, the message delivered was very much that circumstances of change, difficult choices must be made, kind of implying there will be some broader based tax increases. However, I think we do still see some risk in terms of the actual delivery in the budget, just in terms of what those tax increases look like, exactly how much headroom is rebuilt against what feels to be pretty solid market expectations here. I don't think our viewers are maybe a little bit at risk of a bit of more of this curve steepening as that budget delivery gets digested at the end of this month.
So thank you, Gendre. That's it. That's all from us.
Thank you for listening and stay tuned for more updates on the fixed income space here on At Any Rates, Jay Morgan's global research podcast series. This communication is provided for information purposes only. Please read the Jay Morgan research reports related to its contents for more information, including important disclosures.
Copyright 2025, Jay Morgan Chase & Co. All Rights Reserved. This episode was recorded on 7th November 2025.
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