The Bank of England hikes, yet gilts remain Europe's costliest debt

The decision and the vote

The BoE's Monetary Policy Committee raised Bank Rate from 3.75% to 4% at the meeting that ended on 4 November, announcing the decision on 5 November. The vote was 8–1, with Catherine Mann seeking a 50 basis point move to 4.25%. With eight of nine members converging on the same step, the debate is no longer about whether to hike but about how far.

Swati Dhingra and Alan Taylor were among the eight who voted for 25 basis points. Taylor described the move not as the start of a tightening cycle but as an insurance hike against risk. According to Channel 4, Bailey said it would not be the last increase if the Middle East conflict is not resolved.

The numbers that moved the committee

In the BoE's arithmetic, Brent futures averaged 108 dollars over the 15 working days to 27 October, 38% above the level assumed in the July report. UK gas futures averaged 216 pence per therm over the same window, 81% higher than in July. A gas shock more than twice the size of the oil shock points to heating and electricity bills as the main channel.

September CPI was 3.5%, and roughly 1 point of that came directly from energy. The committee expects headline inflation to reach about 4.5% in the first quarter of 2027 and about 5% in the second. Trading Economics reports that the adverse scenario peaks at 6.2% in the third quarter. Megan Greene noted that underlying pay growth is stuck around 3.5%: the second-round effect has reached expectations, not yet wages.

Tightening began before the hike itself. According to the BoE, two-year fixed mortgage rates have risen by about 50 basis points since early September. Budget measures are expected to lower CPI by only 0.25 points by the second quarter of 2027, so fiscal policy is too small to offset the energy shock.

Why gilts rallied as rates rose

Trading Economics data show the 10-year gilt fell to a two-month low of 5.14% on 4 November and closed at 5.15% on decision day. With the hike fully priced, the front end held no surprise; the long end tracked oil. January Brent had dropped 8.67% to 94.62 dollars on 4 November, then rebounded 3.88% to 98.29 dollars on 5 November after tanker attacks in the Gulf.

The curve is therefore reading energy, not the decision. The 30-year gilt rose to 5.63% on 5 November while the 10-year eased slightly, widening the 10s30s spread to about 48 basis points. The term premium, the extra yield investors demand for holding longer maturities, is pricing the risk that inflation becomes entrenched in 2027. Mann, explaining her dissent, also pointed to the inflation risk premium in the yield curve.

Where Europe's debt premium is building

Ideal Investisseur data show the 10-year OAT closing at 4.75% and the Bund at 3.27% on 5 November, taking the spread down to 148.2 basis points. Although the French assembly rejected the revenue section of the budget 458–0 on the evening of 4 November, the spread narrowed by 13.6 points from 161.8 on 3 November. According to Teleborsa, the Italian BTP–Bund spread also eased, from 116.8 on 30 October to 113.83 on 3 November.

That picture undercuts the narrative of a regional debt crisis. On 5 November gilts traded about 188 basis points over Bunds, about 40 over OATs and about 31 over 10-year Treasuries. Britain enjoys neither the ECB's single policy rate nor the safe-haven demand that supports the Bund; its energy import bill is paid directly through sterling and gilts. Europe's debt premium is accumulating chiefly in the economy outside the euro that is most exposed to energy.

The ECB is tightening against the same shock. With the deposit rate at 2.50% and euro-area October inflation at 4.0%, Bundesbank President Nagel described a 17 December hike as very likely necessary. CME FedWatch shows the probability of a US hike on 9 December falling from 82.7% to 66.7% on 5 November. Three major central banks are thus responding to the energy shock in the same direction, but at different speeds.

The Türkiye channel and the calendar

For Türkiye the channel is European demand and the cost of euro and sterling funding. The roughly 50 basis point rise in two-year mortgage rates squeezes UK household demand, while the ECB's December move squeezes euro-area orders in the same quarter. For exporters the risk is volume, not the exchange rate: as Europe's energy bill grows, the share left for imported goods shrinks.

The next thresholds are set. US October non-farm payrolls are due on 6 November at 16:30 TRT, with the Dow Jones survey expecting 59,000. The BoE's next decision is on 17 December, the same day as the ECB's. The market-implied path has the BoE moving to 4.25% in February; a return of Brent above the BoE's 108 dollar average would pull that path forward.