Bank of England keeps rates steady amid inflation risks

The Bank of England's nine interest rate-setters voted unanimously to maintain borrowing costs at their current levels, even as they warned of inflation risks stemming from the conflict in the Middle East. While the decision was to hold, several policymakers suggested that a rate hike might be necessary in the future. This development has caused market participants in the United Kingdom to significantly increase their expectations for future monetary tightening.

The British pound remained strong following the announcement. The GBP/USD pair was seen trading at approximately $1.3294, while the EUR/GBP exchange rate was positioned around 86.30 pence. In the gilt market, two-year yields reached 4.27%, having spiked to a one-year high of 4.321% earlier in the day. Traders are now pricing in two 25-basis-point interest rate hikes by the end of the year, a notable shift from previous expectations which had only fully priced in one such move.