According to the Bank of England 2014 3rd Quarter Review, UK short-term interest rate expectations implied by the forward curve declined a little over the period.
Much of that change came following the release of the August 2014 Inflation Report, which contacts suggested had indicated a more accommodative stance than anticipated by many market participants.
Eurozone
Euro-area short-term rates fell relative to their sterling counterparts, reflecting, in part, the loosening of monetary policy announced by the European Central Bank (ECB) at its June meeting.
Contacts also attributed the decline to a further deterioration in euro-area growth prospects and falling inflation expectations.
These developments were perceived to have increased the likelihood that the ECB would take additional easing measures, perhaps via outright asset purchases.
After the end of the review period, the ECB cut all three of its policy rates further and announced asset-backed securities and covered bond purchase programmes.
International
International long-term bond yields continued to decline.
While the reasons for this remain unclear, contacts cited a number of plausible factors including lower expectations for policy rates, a lack of supply at longer tenors, liability-driven investors shifting assets from equities into bonds, and a flight to quality resulting from geopolitical tensions.
The fall in yields was largest in the euro area, which contacts thought was a result of weaker growth expectations compared with other major developed economies.
Sterling
Sterling rose over the review period as a whole, particularly versus the euro.
The moves were broadly consistent with changes in differences in international interest rates.
After rising to its highest level since 2008, the sterling ERI declined towards the end of the review period.
Political Risk
Geopolitical risk associated with tensions in Ukraine and conflicts in parts of the Middle East continued to cause sporadic periods of heightened risk aversion among financial market investors.
There was a brief sell-off in some risky asset markets in July, which was particularly marked in the US high-yield corporate bond market.
While much of this movement subsequently reversed, the level of US high-yield corporate bond spreads remained somewhat higher than earlier in the year.
In contrast, while there was a brief sell-off in equities, the S&P 500 subsequently reached new all-time nominal highs. European equities also recovered, albeit to a lesser degree.
Sources: www.bankofengland.co.uk (Bank of England Q3 Quarterly Bulletin 2014/09/14)