The Bank of England's policy meeting will hog the limelight in the gilt market this week as evidence mounts that more tightening might be needed in the coming months to cool down the steamy economy.
Gilts investors will also be on tenterhooks ahead of the European Central Bank's meeting on Thursday amid heightened speculation that it might contemplate easing interest rates.
All but one of 45 economists polled by Reuters said the Bank of England's Monetary Policy Committee will keep interest rates at 4.00 percent in March after February's 25 basis point hike.
The central bank will hold a two-day meeting on March 3-4 and the decision will be announced on Thursday.
Although the Bank's pledge to take a cautious approach to adjusting rates means back-to-back hikes are unlikely, some MPC members might be uncomfortable with recent data which indicated their November and February rate hikes did little to restrain demand. House prices still surged at their fastest pace in nearly two years in February while factory orders books also improved. Although consumer confidence fell back a bit this month, it was still much higher than the same period a year ago.
But analysts believe the Bank can afford to wait, perhaps until May, to gauge the impact of the quarter point hike earlier this month.
"You would expect some delay in the effect of rate hikes," said Melanie Baker, economist at Morgan Stanley.
"We are looking for another two 25 basis point rate hikes, with the next one likely in May," she said.
ECB MEETING: In the euro zone, speculation of a rate cut swirled in the market after German newspaper Handelsblatt reported that the March 4 meeting could be the first opportunity at which the ECB would seriously look into a possible monetary easing.
But some economists doubt that the ECB will cut interest rates at this meeting despite the strength of the euro and mounting political pressure.
"The ECB left the refi-rate at 2.00 percent at its February meeting despite a rising clamour to ease monetary policy as a strong currency threatened to choke off the early stages of the recovery," said Philip Shaw, chief economist at Investec.
"March's meeting is set to re-run this script, and we suspect that the outcome should be exactly the same - the refi rate will remain at 2.00 percent." he said.
MONTH-END BUYING GIVE SUPPORT: Other economic data to be published this week are the manufacturing sector Purchasing Managers' Index (PMI) and household lending on Monday and the services sector PMI on Wednesday.
The January lending data will be closely scrutinised for clues as to whether the BoE's rate hike in November had taken its toll on borrowing.
Economists polled Reuters forecast consumer credit rose by 1.2 billion pounds in January after a slowdown in December.
But whatever the outcome of the data, potential downside in the gilt market could be limited, thanks to strong month-end demand from funds.
And with coupon payments totalling around 2.1 billion pounds due early next month, some players are buying in anticipation that mot of the fresh funds will be reinvested in bonds.