Bank of England Cuts Key Interest Rate

In a move that caught the attention of investors and economists alike, the Bank of England decided to lower the key interest rate by a quarter of a percentage point, bringing it down to 4.5%. This decision has had immediate effects on the financial markets, particularly on the yields of United Kingdom government bonds, known as gilts.

Impact on Gilt Yields

Following the announcement, there was a noticeable shift towards safer assets, with government bonds seeing a significant increase in demand. This shift is partly attributed to the looser monetary policy and growing concerns over the state of Britain's economy. The situation was further compounded by recent data indicating that the UK's gross domestic product (GDP) showed no growth in the third quarter of 2024.

Market Reactions

The yield on the 10-year gilt fell by 4.9 basis points to 4.391% at 1:09 pm CET. Similarly, the yield on the two-year gilt decreased by 5.4 basis points to 4.0900%, and the 30-year gilt's yield slipped by 3.8 basis points to 4.993% shortly thereafter. These movements highlight the market's reaction to the Bank of England's decision and the broader economic indicators.