(Repeats Wednesday's story without changes)
By Jamie McGeever
LONDON, April 25 (Reuters) - As the global shift towards higher interest rates moves up a gear, attention is turning to Europe's two major central banks.
Current market pricing strongly suggests the Bank of England will tighten further and faster than European Central Bank. But the reality may turn out to be quite different.
Having hiked rates once last year to counter a slump in the pound and the resulting rise in inflation, the BoE is further down the road of policy "normalization" than the ECB, albeit only slightly.
Money markets show investors expect the ECB will raise its deposit rate, currently -0.4 percent and below zero for four years, by only 30 basis points over the next three years. Meanwhile, they expect the BoE to raise its 0.5 pct Bank rate by 50 bps over the same timeframe.
The implied UK-euro zone rate gap is expected to remain wide at, or around, current levels for several years. The implied gap in four years is around 100 bps. It will narrow, but slowly: the implied gap in 10 years time is still around 50 bps.
Two-year bond yield spreads, another indicator of where investors see relative policy rates going over the near term, also point to UK rates rising more than euro zone rates.
Last month, the two-year UK-euro zone yield spread reached 150 basis points, the widest gap since 2007 and double what it was only a year ago.
This market pricing dovetails with a perception in markets that the nimble, flexible BoE will tighten policy more than the consensus-led, cautious ECB - a supposedly clumsier operation beholden to the views of 19 national policymakers and facing far less acute inflationary pressures.
Unsurprisingly, sterling is doing pretty well right now. It's up more than 2 percent on a trade-weighted basis this year, supported by the BoE's rate hike last November and expectations it will raise again this year.
The trade-weighted euro is up only 0.4 pct year-to-date.
But what if markets are wrong, or at least too aggressive in their view?
Once the ECB delivers its first rate hike, there's every chance it will continue to raise more steadily and consistently than the BoE. This is not in the current script, so currency, rates and bond markets could be vulnerable.
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A detectable shift is underway in both camps.
Firstly, the ECB. Policymakers are increasingly coalescing around the view that, a decade on from the onslaught of the crisis, policy normalization should begin sooner rather than later, even if inflation is still well below target.