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U.K. Inflation Bets Drop From 25-Year High

  • Ten-year breakevens set for largest monthly drop since 2019
  • Energy prices, omicron variant complicate price outlook
A shopper browses products inside a beauty store in central London.

A shopper browses products inside a beauty store in central London.

Photographer: Jason Alden/Bloomberg

A gauge of the market’s expectations for U.K. inflation are easing from the highest in more than two decades, with traders relieved by the start of the Bank of England’s rate-hike cycle. 

Ten-year breakeven rates -- derived from the difference between yields on 10-year gilts and the equivalent inflation-linked security -- are set to drop this month by the most since October 2019. The move comes in the wake of the BOE’s shock 15-basis-point rate increase this month, and as yields on inflation-linked bonds rose to levels not seen since early November.