Bank of England hikes for the first time since the Iran war, lifting interest rate to 4%

The Bank of England raised its policy rate to 4%, marking its first increase since the Iran war, according to CNBC. The move transmits through the rate differential channel, as a higher sterling policy rate widens the gap against peers and tends to attract capital into sterling-denominated assets while tightening financial conditions for borrowers. Gilts and sterling are the most directly exposed, with short-dated gilt yields most sensitive to the repricing of the policy path, while UK rate-sensitive sectors such as housebuilders and mortgage-dependent lenders face pressure from higher borrowing costs. The Iran conflict's implications for energy prices and inflation expectations are central to whether the hike signals a sustained tightening cycle, so traders will be watching the next UK CPI release and any guidance from the MPC on the likely path of future rate decisions.

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