Traders are not just betting on one Bank of England rise this week; they are pricing a full cycle, and that expectation is colouring how London's leading shares trade.

Four quarter-point Interest Rate rises in roughly ten months. That is what money markets had fully priced from the Bank of England by next September, according to LSEG data cited by Reuters. The first of those moves is widely expected on Thursday 5 November 2026, when the Monetary Policy Committee is forecast to lift Bank Rate by 25 basis points from 3.75% to 4%, the first increase since August 2023.

Expectations on that scale do not stay confined to the bond and currency markets. They reach into valuations, sector preferences and the way investors judge risk. The FTSE 100 gave a flavour of that on Tuesday 3 November, closing at 10,638.43, down 122.90 points or 1.14%. Reuters called it the index's steepest one-day fall in a month, ending four straight sessions of gains.

What "fully priced" actually means

When analysts say markets have "fully priced" a set of hikes, they are describing what is implied by trading in short-term interest rate instruments. Those prices can be translated into a market-implied path for Bank Rate. If that path shows rates four quarter-points higher by a given date, the market is, in effect, treating that outcome as its central expectation.

This is not a forecast from the Central Bank itself, and it can change quickly. Market pricing responds to every new Inflation print, energy price move and speech from policymakers. It can also overshoot, especially when uncertainty is high and investors are keen to hedge against the risk of a more aggressive response.

For illustration, consider what four 25bp hikes would mean in simple arithmetic. Starting from 3.75%, a first rise takes Bank Rate to 4.00%, a second to 4.25%, a third to 4.50% and a fourth to 4.75%. That cumulative 100 basis points is the scale of tightening currently embedded in market prices, not a confirmed path.

Not everyone agrees with the market

Some economists think traders have gone too far. ING expects the Bank to follow Thursday's move with another in February, but it regarded market pricing for further increases as excessive. At the same time, ING acknowledged that the worsening energy crisis had "made it much harder for the Bank not to act."

Alessia Berardi, head of global Macroeconomics at Amundi Investment Institute, made a similar point. She noted that the market was pricing a full hiking cycle, but said: "we think that one or two moves will be enough."

That disagreement matters for investors. If the MPC signals that it is closer to the economists' view than the market's, rate expectations could ease, and the pressure on rate-sensitive shares might lift. If the Bank sounds more hawkish, the market's four-hike scenario could gain credibility. Either way, the tone of Thursday's statement and the minutes may move markets more than the decision itself.

Why a hiking cycle weighs on share prices

There are several channels through which higher expected rates can drag on an index like the FTSE 100.

Valuations:Equities are often valued by discounting expected future cash flows. When rates are expected to rise, the discount rate tends to rise too, which can reduce what investors are willing to pay for those cash flows today.

Competition from safer assets:Higher rates improve returns on cash and short-dated bonds, making them relatively more attractive compared with shares.

Economic drag:A sustained series of hikes can slow borrowing, spending and investment, which may eventually affect company revenues and profits.

Credit quality:For lenders, higher rates can boost interest margins at first, but an extended cycle raises the risk that some borrowers struggle to repay.

On Tuesday, the FTSE 350 banks index fell 1.6% ahead of the decision. HSBC (LSE:HSBA) dropped 2.0% and was the largest approximate drag on the FTSE 100 in points terms. That pattern suggests investors were thinking about more than near-term Margin gains; the possibility of a longer, steeper cycle brings broader economic risks into view.

The reason the market expects so much tightening is closely tied to energy. Brent Crude settled at $104.77 a barrel on Monday 2 November, even after a 7.63% drop that day, and Reuters reported a further slide of roughly 2% on Tuesday as investors weighed talks aimed at ending the wars in Ukraine and Iran. Reuters also noted that elevated oil prices have fuelled inflation fears and that many central banks have raised rates.

That link creates an unusual dynamic. Oil-related headlines can shift rate expectations, and rate expectations in turn shift valuations. Early on Tuesday, for instance, Brent rose to around $105.25 after The Wall Street Journal, citing US officials, reported a US strike on Iran's Qeshm Island. Tim Waterer, chief market analyst at KCM Trade, said the report "added a degree of risk premium back into the oil price." A sustained rise in oil would likely reinforce the case for more hikes; a sustained fall could weaken it.

Sterling has been relatively steady during the build-up, trading around $1.3417 on Monday 2 November and about 83.53p per euro. Currency moves after the decision could offer another signal of how markets interpret the Bank's message, particularly for FTSE 100 companies that earn significant Revenue overseas.

Other parts of the market were also under strain on Tuesday. The FTSE 350 basic resources index lost 2.6% as copper fell to a multiweek low, while Associated British Foods (LSE:ABF) and Coca-Cola Europacific Partners (LSE:CCEP) fell after their results. Not every move was about rates, but a market braced for tighter policy tends to have less tolerance for disappointment.

Key dates to watch

Wednesday 4 November:Eurozone inflation figures, expected at 3.9%.

Thursday 5 November:Bank of England MPC decision, with a 25bp rise to 4% widely expected.

Friday 6 November:US October jobs report.

Thursday 12 November:ONS first quarterly GDP estimate for July to September 2026, at 7:00am.

The bottom line

The FTSE 100's 1.14% slide on Tuesday came as markets priced not just one rise but four by next September. That expectation, rooted in an energy shock, shapes how investors value shares, from banks to consumer names. Yet it is only an expectation, and respected voices at ING and Amundi suggest the cycle could prove shorter. Thursday's decision, and especially the guidance that accompanies it, will test which view holds sway, while data on growth and inflation in the weeks ahead will keep that debate alive.