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, its first increase in more than three years, and said at least one more hike was likely if the US-Iran conflict continues. UK two-year gilt yields rose around 3 basis points to 4.77%.
1. Rate decision
The Bank of England raised interest rates to 4% from 3.75% on Thursday, its first increase in more than three years. The Monetary Policy Committee voted 8-1; the dissenting member sought a larger increase. The bank warned that at least one more hike was likely if the US-Iran conflict continues.
2. Markets react
UK gilt yields rose, with rate-sensitive two-year yields up around 3 basis points at 4.77%. Traders priced in about 76 basis points of further tightening by the end of 2027, up from roughly 67 basis points before the decision.
3. Views on further hikes
Several strategists described the decision as hawkish, while opinions differed on how much further rates might rise. BlackRock’s Vivek Paul said markets were pricing in too many hikes and that the firm saw room for one more over the next year; Schroders’ David Rees said UK rates could peak at 4.25%.
