Interest rate futures are pricing in a roughly 60% chance that the BoE will cut Bank Rate to 5.0% from its a 16 year-high of 5.25% at its June meeting.
On Tuesday, investors were putting only a 40% chance on a June rate cut after stronger-than-expected U.S. inflation data reverberated through global financial markets.
But that changed after data on Wednesday showed British inflation unexpectedly held steady at 4.0% in January, defying forecasts of a rise.
Two-year gilt yields fell by as much as 13 basis points on the day having hit their highest since late November on Tuesday. At 0938 GMT, they were down by 10 basis points at 4.58%.
"Markets had reacted sharply to the stronger than expected U.S. CPI yesterday, scaling down the expected number of policy rate cuts in the UK as well as the U.S.," Philip Shaw, an economist with Investec said.
"But in domestic rate markets this move has been partially reversed by this morning's release."
Investors were positioned for 67 basis points of rate cuts by the BoE - or almost three separate quarter-point reductions - by the end of 2024, compared with about 58 basis points before the British inflation data release.
(Reporting by William Schomberg; editing by David Milliken)
