Sterling drops on ‘one and done’ UK rate hike

Sterling fell sharply yesterday after the Bank of England raised interest rates for the first time in more than a decade but said it sees only gradual rises ahead.

The Bank of England said its nine ratesetters voted 7-2 to increase its benchmark bank rate to 0.5% from 0.25%, but it expected only “very gradual” further increases would be needed: Two more 25-basis-point hikes over the next three years.

The pound initially spiked higher on the announcement of the hike but fell almost 2c in the three minutes that followed, as investors digested the statement accompanying the rate decision, focusing on the fact that it did not appear that this hike marked the start of a steady tightening cycle. The euro surged 1.75% to over 89.25p.