UK Bond Yields and Sterling Dip as BoE Holds Rates Steady

The UK's bond yields and sterling fell slightly on Thursday after the Bank of England held interest rates at 3.75% as expected, according to an announcement. The two-year government bond yield dropped by 7 basis points to around 4.38%, which is a sign that investors are adjusting their expectations for future rate hikes. Sterling was also down very slightly from before the decision, trading at $1.339.

Although six members of the Bank's Monetary Policy Committee voted to hold rates, three officials voted for a hike - more than economists had expected. The BoE's updated forecasts showed inflation rising to 3.2% later this year, down from a 15-month low of 2.6% in June.

Schroders senior economist George Brown said that the Bank is taking a 'wait-and-see approach' and is not seeing enough reason to abandon it. He noted that despite sharp rises in energy prices, most officials are unconvinced that this will translate into more persistent domestic inflation.