As officials in Britain attempt to rein in out-of-control inflation, it is possible that interest rates might reach 4% as soon as next spring.

The money markets seem to agree, with traders increasing their wagers on the likelihood of further, more aggressive tightening from the Bank of England. With the gas situation becoming worse and winter coming up in a matter of months, many people believe that the government will have to initiate a severe recession in order to slow inflation, which is now rising at its highest rate in 40 years.

Interest rate swaps linked to central bank decision dates show that traders are now betting on about 235 basis points of rate rises by May. That would be the largest in this cycle and would push the key rate from its current 1.75% to 4%, which is a full percentage point more than what was predicted in the previous month.

Traders are betting that consumer prices will continue to rise at a record pace, leading Citigroup. to predict that the headline rate will rise over 18% in the next year. As a result of the Fed's more robust stance against inflation, the market is betting the BOE will raise rates even sooner.

The pound, however, has not capitalised on the opportunity as growth prospects have dimmed, and on Tuesday it fell to $1.1718, its worst level since March 2020. The yield on UK government bonds with a maturity of five-years has risen to 2.50%, a level not seen in the market in almost ten years.

The BOE has increased rates at six straight sessions, with the most recent increase being the greatest half-point increase in almost two decades.