BoE lifts bank rate to 4.00% as expected; ECB's Zigman flags possible December hike

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Markets:

• WTI crude oil gained 1.50%, reaching $89.50
• Gold rose 1.41% to $4,116
• CAD led, EUR lagged
• S&P 500 added 0.03% to 7723
• The US 10-year Treasury yield was flat at 4.89%
• Bitcoin slipped 0.96% to $79,624

The Bank of England's policy announcement was the main event of the session. The bank rate was lifted by 25 bps to 4.00% on an 8-1 vote, with one member opting for a larger 50 bps increase. The decision came as worries mount over the inflationary impact of the Middle East conflict and higher energy prices. UK CPI inflation hit 3.5% in September and is expected to approach 5% by mid-2027. The BoE says evidence of second-round effects on wages and prices more broadly is limited so far, but stronger-than-expected economic activity and building price pressures made the increase necessary. Future decisions, officials stressed, would be made meeting by meeting, with wage growth, business pricing and economic slack all closely watched.

The minutes showed a hawkish split among MPC members. Lombardelli, Pill and Greene signalled that more hikes may be required, while Taylor and Dhingra regarded the move chiefly as protection against worse inflation outcomes. Bailey argued that part of the rise in market rate expectations reflects higher risk premia, not expectations of further tightening. The BoE's 2027 GDP growth forecast was raised to 1.3%, but activity is expected to weaken, with unemployment projected to hit 5.1% in 2028.

Martin Schlegel, chairman of the SNB, said there is currently no significant evidence of second-round inflation effects and that the Swiss economy is showing early signs of growth. He stressed Switzerland's continued high exposure to external economic shocks, and noted that the Swiss franc still has relatively strong safe-haven qualities compared with other currencies.

Schlegel again said the SNB would step in if price stability came under threat. Its primary tool would be the policy rate, with foreign exchange interventions and other measures kept available if needed. He also voiced confidence in the SNB's monetary policy framework, saying price stability has been successfully maintained so far this century and that the framework remains effective across a broad range of economic conditions.

ECB policymaker Zigman indicated that another rate increase could be considered as soon as December, describing the likelihood of a hike as relatively high. Still, he cautioned that it is too early to determine how much additional tightening may be required.

No other major developments emerged, with fallout from the US midterm elections still driving market moves and further US-Iran news awaited.