Taking Fed's lead, UK investors fully price in BoE hike in March

LONDON (Reuters) - British investors on Wednesday fully priced in a 0.25 percentage point increase in Bank of England interest rates at its March meeting, after the U.S. Federal Reserve signalled that it could push its rates higher.

A day earlier, the overnight index swap market had shown a roughly 90% chance that the BoE would raise rates on March 23 to 4.25% from 4%, and a small chance of a pause - based on calculations by Refinitiv.

Instead, investors now see a roughly 5% chance of a bigger 0.50 percentage point hike on March 23.

The re-pricing follows Fed Chair Jerome Powell's comment overnight that the United States may need to raise interest rates more than expected in response to recent strong data. The dollar surged against the pound after Powell's remarks.

The yield on the interest rate-sensitive 0.625% 2025 British government bond - which became the benchmark two-year gilt at the start of the month - rose to its highest level since Oct. 21.

(Reporting by Andy Bruce; editing by Barbara Lewis)