Bank of England delivers first rate hike in three years, gilt yields rise
TLT•The Bank of England raised its policy rate to 4% from 3.75% in an 8-1 vote and said at least one more increase was likely if the US-Iran conflict continues. UK gilt yields rose, with two-year yields up around 2 basis points to 4.76%.
1. Rate decision
The Bank of England raised interest rates for the first time in over three years, lifting the policy rate to 4% from 3.75%. The Monetary Policy Committee voted 8-1, with the dissenting policymaker seeking a larger increase.
2. Market reaction
UK gilt yields rose after the decision. Two-year yields, which are sensitive to rate expectations, were up around 2 basis points at 4.76%; sterling edged higher and the FTSE was up 0.7%.
3. Further increases
The central bank warned that at least one more rate increase was likely if the US-Iran conflict continues. Investor comments differed on the outlook: Schroders’ chief economist said UK rates would peak at 4.25%, while another strategist said financial markets were pricing in three further hikes.
