Sterling fails to find boost from Bank of England rate hike

The Bank of England's bigger-than-expected rise in interest rates provided only a fleeting boost to sterling on Thursday, as investors bet the central bank's aggressive action is likely to help push the UK into recession. at the end of this year. Sterling jumped briefly following the BoE's decision to raise borrowing costs to 5 percent from 4.5 percent previously. But the gains faded quickly, with the currency trading 0.1 percent lower against the dollar at $1.2758, below the level seen before the rate announcement. Yields on two-year UK government bonds, which are sensitive to short-term interest rates, fell slightly to 5.03 percent from 5.06 percent. Although the moves were relatively small, investors said markets were focusing on the growth-sapping effect of rate increases, changing the typical correlation between higher borrowing costs and a stronger currency.


 Further weakness in sterling, which raises the cost of imported goods, could be a headache for the BoE as it struggles to curb inflation. You are viewing a snapshot of an interactive chart. This is most likely because you are offline or Russia Mobile Number List JavaScript is disabled in your browser. “The market is hinting that this increase will kill growth and reduce inflation, and I think the market is right,” said Mike Riddell, bond portfolio manager at Allianz Global Investors. The rate increase comes after the latest evidence of stubbornly high price increases. UK inflation remained stagnant at 8.7 per cent in May, according to data released on Wednesday, above the expected 8.4 per cent. Core inflation, which excludes volatile food and energy prices, rose again in May.





The previous month, the highest rate since March 1992. That data had sent the pound lower earlier this week, ending a three-week period of gains against the dollar, even as traders bet that BoE rates will rise as much as 6 percent by the end of anus. “The idea that we can relieve labor market stress without a recession has not historically happened in the UK,” said Tomasz Wieladek, chief European economist at T Rowe Price. “Everyone has really underestimated the impact of inflation on the UK economy; "BoE may rise to 6 percent, but sterling is still depreciating," he added. Before Thursday's decision, the BoE was expected to raise rates by 0.25 percentage points, but markets had priced in a 45 percent chance it would move to 5 percent ahead of the meeting.