Sterling Rises, Gilt Yields Trim Losses After BOE Raises Rates
By Renae Dyer
Sterling strengthened and yields on U.K. government bonds trimmed losses after the Bank of England voted 8-1 to raise interest rates by 25 basis points to 4.0%.
While a rate increase was widely expected, BOE member Catherine Mann surprised markets by voting to increase rates by 50 basis points.
Sterling briefly rose 0.1% to $1.3480 after the decision while the euro reached an intraday low of 0.8319 pounds, near the 19-month low of 0.8317 reached on Friday, according to LSEG data.
Yields on 10-year gilts rose to 5.148%, albeit still down 1.2 basis points on the day, from 5.110% before the decision, Tradeweb data showed.
BOE Governor Andrew Bailey said without an end to the Middle East conflict that softens the risks to inflationary pressures, he could see the argument for a further increase in rates. Thereafter, he expected "a more conditional approach" dependent on energy prices and inflation dynamics.
The BOE's policy statement also said there remained limited evidence of knock-on effects on other prices and wages.
"We think it probable that market pricing for a further three hikes might overstate the case for further tightening, especially given energy market strains have eased a little since Tuesday and the U.S. midterm results," Aberdeen economist Felix Feather said in a note.
"But we do see at least one further hike, probably coming in February next year. That relatively shallow tightening cycle could leave some space for U.K. assets including gilts to rally."
U.K. inflation increased to an annual rate of 3.5% in September and the BOE now expects it to rise to around 5% by the middle of next year. That is well above the BOE's 2% target. The BOE also noted that recent economic activity data have generally been stronger than expected, adding to the case for "modestly tighter" monetary policy.
"The MPC will have growing worries over second-round effects and will likely want to get ahead of this, especially so ahead of the New Year wage settlements," Aviva's head of rates Ed Hutchings said in a note.
Write to Renae Dyer at renae.dyer@wsj.com
(END) Dow Jones Newswires
November 05, 2026 08:18 ET (13:18 GMT)
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