LONDON (Reuters) – Sterling rose to its highest level in two years versus the euro on Thursday while gilt yields shot higher after the Bank of England raised its benchmark interest rate to 0.5% to contain rampant price pressures.
The majority of the nine members of the Monetary Policy Committee, including Governor Andrew Bailey, voted for a 0.25 percentage point increase.
Sterling rose 0.5% versus the euro to 82.87 pence, touching its highest level versus the single currency in two years.. Versus the dollar, the pound rose 0.4% to $1.3616.
In a surprise decision, four of the MPC members wanted to raise interest rates by half a percentage point to 0.75%. This would have been the biggest increase in borrowing costs since the BoE became operationally independent 25 years ago.
British gilt yields shot higher after the BoE move dragging euro zone bond yields with them.
Britain’s two-year gilt yield soared almost 12 bps to 1.157%, while yields in Germany and Italy hit new highs
Britain’s equity markets moved further down in negative territory on the news with London’s blue chip index FTSE 100 losing 0.3% while the mid-cap index fell to -0.6%.
(Reporting by London Markets Team; Editing by Saikat Chatterjee)
