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The UK’s short-term borrowing costs have retraced the downward path they embarked on after last week’s Bank of England rate rise, ending the week hovering on the brink of positive territory in real terms.
The two-year gilt yield briefly topped 0.5 per cent on Friday and is now trading at around 0.49 per cent, up from 0.43 per cent at the start of this week.
It hit a low of 0.39 per cent last Thursday after Bank of England governor Mark Carney implemented Britain’s first rate hike in more than a decade. He increased the base rate by 25 basis points from its record 0.25 per cent low, which the central bank put in place in the aftermath of last summer’s surprise referendum vote to leave the EU.
Last week’s dip surprised policymakers, who had viewed the BoE’s decision as hawkish. The downward move in yields indicated that investors did not view the rate hike as the start of a tightening cycle for monetary policy.
However, the gradual upward drift in short-term yields since then suggests that markets may be slowly recalibrating their view of the bank’s position and the UK’s economic outlook.