UK investors reduce bets on BoE rate cut after CBI data

LONDON (Reuters) - Financial markets saw a lower chance on Wednesday that the Bank of England will cut interest rates next week, after the Confederation of British Industry reported a pick-up in manufacturers' sentiment.

Factories' optimism about the outlook rebounded to its highest since August 2014, according to the quarterly survey.

March gilt futures <FLGcv1> shed around 40 ticks from a session high reached just before the data, while interest rate futures repriced to show a roughly 50% chance of a 25 basis point rate cut on Jan. 30, down from about two thirds earlier <BOEWATCH>.

"We expect a dovish hold next week," Morgan Stanley economist Jacob Nell said, adding that the CBI data increased the chance of a pick-up in a closely watched purchasing managers' index due on Friday.

"CBI survey data improved in January, with manufacturers' optimism about the economy surging, a rise in capex plans and an improvement in orders," Nell said.

British government bonds underperformed their German peers on the reduced chance of a cut, with the yield spread between five-year gilts and Bunds widening by 4 basis points to a one-week high of 97.7 basis points <DE5GB5=RR>.

(Reporting by David Milliken, editing by Andy Bruce)