What was an uncertain Bank of England decision became almost a lock after U.K. inflation data came in unexpectedly hot.
The odds of a quarter-point hike, to 4.25% from 4%, moved to 97% after the data from the Office for National Statistics on Wednesday showing inflation accelerating to 10.4% year-over-year in February.
The yield on the 2-year gilt TMBMKGB-02Y, 3.460% rose 15 basis points to 3.44%. The British pound GBPUSD, +0.56% jumped to $ 1.2287 from $ 1.2217.
It was the first upwards move since October, when inflation ran at a 11.1% clip. And worryingly, core inflation accelerated as well, moving to 6.2% from 5.8%.
“This unexpected reacceleration in inflation despite the cumulative near-400bps of monetary tightening over the past eighteen months will not be welcomed by policymakers,” said Ellie Henderson, an economist at Investec Securities.
“When deciding the appropriate level of the Bank rate the MPC will have to assess which is the lesser of two evils: the risk of inflation being higher for longer or the current threat to financial stability stemming from the rapidly evolving fears of a banking crisis,” she added.