Fine, it's not turning, but you get the idea. Photographer: David Paul Morris/Bloomberg
Fine, it's not turning, but you get the idea. Photographer: David Paul Morris/Bloomberg

Bank of England Governor Mark Carney today repeated his assertion that the timing of the first increase in U.K. interest rates is "going to be data driven." Figures today showing inflation unexpectedly accelerated to 1.9 percent last month remove at least one obstacle to a possible tightening by year-end.

Here's a chart showing current market expectations for where three-month rates will be by the end of December, and at the end of subsequent quarters:

June's inflation increase contrasts with economists' expectations for a 1.6 percent annual pace, and puts price increases closer to the Bank of England's 2 percent target.

Three-month sterling rates are now at 0.55 percent, trading at a small premium to the central bank's official 0.5 percent rate. So that 0.8 percent December probability corresponds to a single quarter-point tightening in the coming months. Moreover, the chart suggests that the "lower for longer" mantra will persist through 2015, with subsequent increases paced at about 0.25 percent every three months leaving the bank rate no higher than 1.5 percent by the end of next year. That compares with an average of 4 percent since 1994.

To contact the author of this article: Mark Gilbert at magilbert@bloomberg.net.

To contact the editor responsible for this article: James Greiff at jgreiff@bloomberg.net.