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  /  News   /  London Markets: Bank of England surprising keeps rates unchanged, sending pound lower

London Markets: Bank of England surprising keeps rates unchanged, sending pound lower

The Bank of England opted to hold off on an interest-rate hike that futures markets had fully priced in.

The Bank of England decided to keep interest rates at 0.1%, rather than raise them to 0.25%, in a 7-to-2 vote. By a 6-to-3 vote, the central bank kept its quantitative easing program unchanged that’s due to expire next month.

The pound

immediately sunk, trading below $1.36.

The yield on the 2-year gilt

fell nearly 7 basis points to 0.63%.

U.K. consumer prices climbed 2.9% in the 12 months ending September, and the central bank expects inflation to rise further, reaching 5% in the spring.

An Office for National Statistics survey released on Thursday showed that one in six businesses either couldn’t get the supplies they needed, changed suppliers or had to find alternatives. A surge in wholesale gas prices also is impacting the U.K. economy.

The central bank however does expect inflation to dissipate from the second half of next year. The Bank of England’s forecast is for rates to be around 1% by the end of 2022, and for CPI to be a “little above” the 2% target in two years’ time.

The Bank of England last hiked rates in August 2018, to just 0.75%. The base rate hasn’t been above 1% since 2009.

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