The Zhitong Finance App learned that the Bank of England's decision to raise interest rates was implemented as scheduled, but the nine votes in favor of tightening the consensus were stronger than the economists' unanimous judgment before the meeting. On November 5, the Bank of England raised the benchmark interest rate by 25 basis points to 4%; eight members supported this margin, while Catherine Mann advocated a 50 basis point increase in interest rates. Compared to the “seven people support the interest rate hike and the two support remain unchanged,” the actual results mean that all nine members have tightened their support. As far as the market is concerned, the new information is that the central bank's concerns about the continuation of inflation have expanded, and the threshold for resuming interest rate cuts in the short term has been further raised.
The forecast adjustment revealed the root cause of the policy shift: the central bank expected inflation to rise to 4.9% in the second quarter of 2027 and not return to 2% until the third quarter of 2028; the inflation forecast for the fourth quarter of 2027 was raised to 4.0% from 2.1% in July. Meanwhile, the full-year economic growth forecasts for 2026 and 2027 were raised from 1.1% and 1.1% to 1.6% and 1.3%, respectively. This means that at a time when the energy shock intensifies, the economy is more resilient than expected, making it more difficult for central banks to rely on weak demand to naturally reduce inflation.
The Bank of England's monetary policy statement said that interest rate hikes are preventive in preventing energy price increases from evolving into continued inflation. The central bank admits that evidence of energy costs spreading to wages and other prices is still limited; however, the longer the impact lasts, the longer companies absorb costs by reducing profits, the less room for households to maintain consumption by reducing savings, and the possibility of raising prices again and demanding compensatory wage increases. As a result, policy focus has moved from energy prices themselves to corporate pricing, wage negotiations, and the degree of economic idleness.
The pound is supported by interest spreads, and British bonds need to distinguish between the short and long term
For the British pound, the first thing the hawk vote provided was relative interest rate support. If foreign exchange market traders increase the probability of subsequent interest rate hikes in the UK as a result, and US interest rate expectations are not revised at the same time, the relative earnings appeal of British pound assets will increase. However, before the resolution was announced, GBP/USD had been operating at around 1.35, close to a seven-week high. The previous rise also included the contribution of the weakening of the US dollar after the US election. Therefore, whether the pound can strengthen further in the future requires focusing on whether the increase in the market's interest rate expectations for the UK exceeds the amount already taken into account by the market.
For British treasury bonds, interest rate hikes do not mean that yields for each term will inevitably rise at the same time. On October 8, the yield on UK 10-year treasury bonds rose to 5.527%, the highest since 2007; the 30-year term reached 6.05%, the highest since 1998, reflecting the combined pressure of energy inflation and global bond sell-off. The short end is mainly affected by the future policy interest rate path, and this vote can easily reinforce its upward pressure; the long term also includes inflation risks, term premiums, and fiscal financing compensation. If interest rate hikes increase the central bank's credibility in controlling inflation, while energy prices continue to fall, long-term yields may be more stable or even fall, and the yield curve will flatten as a result.
The differences among investment institutions centered on “how much more to add.” Before the meeting, James Smith, a British economist at Dutch International Group, and his team believed that the energy shock made interest rate hikes a necessary risk management measure, but the market's pricing for subsequent austerity was still aggressive; Pacific Investment Management economist Peder Beck-Friis predicted that after this time, interest rates may only be raised once more in February next year, and interest rates will be maintained for a long time thereafter. These are pre-meeting judgments: the nine votes are being tightened this time, strengthening the recent signal that the policy is hawkish, but it is still not enough to prove that all interest rate increases in market pricing will be implemented.
The US “blue wave” mitigates external pressure, and British assets ushered in a divergent revaluation
After the Democratic Party gained control of both houses of the US Congress, the market simultaneously traded expectations such as possible restrictions on fiscal expansion, possible policy adjustments to Iraq, and the expected easing of energy conflicts, driving oil prices, US bond yields, and the dollar back down.
For British and even European assets, there are two transmissions: falling energy prices help ease the pressure on import costs and residents' actual income; falling US bond yields provide support at the global interest rate level for long-term British bonds. This is why the easing of external inflation brought about by changes in US politics and the domestic austerity signal released by the Bank of England can exist simultaneously and affect different pricing aspects of British assets separately.
In particular, it is important to pay attention to the time difference in predictions: the energy price observation window adopted by the Bank of England ends on October 27, and does not include price changes after the US election. If this round of falling oil and gas prices continues, future inflation pressure in the UK may fall below the level implied in this forecast, and the need for further interest rate hikes may also decrease; a single-day drop in oil prices will not be enough to change judgment, because household energy bills, corporate contracts, and wage negotiations are lagging behind. The key to whether British long-term bonds can escape the pressure of high yields is whether the decline in energy can continue to reduce the risk of medium-term inflation, and at the same time, fiscal financing pressure will no longer push up term premiums.
The British stock market is therefore better understood in terms of profit structure: lower energy costs are beneficial to consumer purchasing power and corporate profit margins, but higher mortgage and financing costs continue to constrain real estate and domestic demand-sensitive industries. Banks may receive increased interest income from loan repricing and reinvestment of maturing assets, but the final profit depends on deposit costs, credit demand, and bad debt losses; multinational companies in the FTSE 100 Index are also affected by the strengthening of the British pound and reducing the equivalent value of overseas earnings.