The central bank's Monetary Policy Committee voted 6-3 to keep the Bank Rate at 3.75%. The three dissenters backed an increase of 25 basis points that would have taken the rate to 4%.
The hold marks a divergence from other major central banks. The Federal Reserve announced a quarter-point hike on Wednesday, its first increase since 2023. Last week, the European Central Bank announced its second rate hike this year, after raising rates in June for the first time in three years. The Bank of Japan is expected to raise its key interest rate at the end of its two-day meeting on Friday.
Bank of England Governor Andrew Bailey said the pass-through from global energy costs to domestic prices and wages has so far been limited, but cautioned that the restraint may not last. "So far, higher global energy costs have had a limited effect on price and wage setting in the U.K.," Bailey said in a statement Thursday. "But the longer this volatility persists, the bigger the impact it will have on inflation, and the more likely it is we will need to raise Bank Rate to ensure that inflation falls back to our 2% target."
Ahead of the decision, yields on British government bonds, known as gilts, were higher across the curve on Thursday morning as markets awaited the outcome. At 10 a.m. in London (5 a.m. ET), the yield on the benchmark 10-year gilt was 1 basis point higher at 5.3147%. The 2-year gilt yield added 3 basis points to trade at 4.7973%, while the 20-year gilt yield was up 1 basis point to 5.8163%. Yields on bonds issued by other European governments, including France, Italy and Germany, were also higher on Thursday morning, while U.S. Treasury yields fell in the wake of the Federal Reserve's rate hike.
In U.S. markets, Treasury yields were little changed Thursday after the Fed's expected increase overnight. The benchmark 10-year Treasury yield was little changed at 5.002%. The 30-year Treasury yield was flat at 5.348%, while the 2-year yield slipped 1 basis point to 4.715%. Traders are also watching the working relationship between Fed Chair Kevin Warsh and President Donald Trump, who is pushing for lower rates. "Interest rates in the United States should be 1 per cent, or less, because we are the best credit in the world — by far," Trump said in a social media post.
The Fed's first hike in three years triggered a sell-off in equities, but some investors see the pullback as an opportunity rather than a turning point. Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a Thursday morning note that his team remains "positioned for further equity gains while preparing for near-term volatility." "If tightening remains measured, credit spreads remain stable, and profits continue to grow, the rally should have scope to broaden across sectors and regions," he said, recommending diversified equity exposure while avoiding excessive concentration in areas particularly sensitive to interest rates or reliant on a single return driver.
Bob Edwards, chief investment officer at Florida-based Edwards Asset Management, argued the decline was overdone. "Now we are past this rate hike, stocks can move on," he said in an emailed note. "Stocks have the clarity needed from the Federal Reserve to resume their rally as the market's wall of worry continues." He described the post-Fed declines as "an overreaction, and a buyable dip," adding that when prices fall without a comparable decline in prospects it is a classic sign of a buying opportunity, and that his firm is encouraging clients to add to stock positions while focusing on valuation, revenue growth, balance sheets and durable cash flows.
Asia-Pacific markets were set to open mixed Thursday as traders assessed the implications of the Fed's move. Japan's Nikkei 225 was poised to rise, with the Chicago futures contract at 64,430 and its Osaka counterpart last trading at 64,250, compared with the index's previous close of 63,923. Hong Kong Hang Seng index futures were at 24,401, compared with the index's last close of 24,713.78. Futures for Australia's S&P/ASX 200 last traded at 8,627, while the index closed at 8,696.50.
Oil prices were lower after the Trump administration tried to reassure the market that Saudi Arabia's damaged East-West pipeline will restart operations in days. Tensions in the Middle East continue to simmer, with Iran vowing on Wednesday to fight on "until the last drop of blood," according to the state media Islamic Republic News Agency.
In corporate news, Citigroup downgraded Boston Scientific on Thursday to neutral from buy while lowering its price target to $50 from $57 per share. The firm cited increased competition and slower than expected growth in core markets, and has cut its estimates on the medical device company eight times year-to-date. A cybersecurity breach in August is leaving "hangover effects," forcing the company to scramble to fulfill customer orders as quickly as possible. While analysts believe management can work through these challenges, they "don't have a handle on the recovery path" and prefer to step aside on the stock. Shares of Boston Scientific are down 53% year-to-date.
Morgan Stanley said Microsoft's total return prospects improved after the software giant announced a quarterly dividend of 98 cents per share on Tuesday, an increase of 8%. The dividend is payable on Dec. 10 to shareholders of record on Nov. 19. Analyst Adam Wood noted the increase is modestly below the roughly 10% average of the prior five years but consistent with the company's record of steadily growing its dividend alongside earnings, and said that combined with high-teens earnings per share growth it "supports a durable high-teens total return profile at MSFT, framing an attractive risk/reward." Morgan Stanley rates Microsoft overweight, with a $600 price target implying 22% upside from Wednesday's close.
Amazon obtained warrants giving it the right to purchase up to $340 million of shares in power company Generac, which said in a securities filing that it issued warrants to Amazon to acquire up to 1.69 million shares valued at $200.93 each. Under the deal, Generac will provide Amazon with backup power generators for its data centers, with initial shares expected to total $2.4 billion in 2027 and 2028, according to the filing.