The Bank of England held its base rate at 4%, citing inflation still running well above target. Additionally, it is slowing down its quantitative tightening (QT; bond sales) from £100B/year to around £70B. Inflation in the UK remains sticky (3.8% in August), which supports the BoE’s cautious stance. We should not be surprised to see sticky inflation , the Bank of England has cut interest rates several times in the last twelve months. As a result UK 10Y yield is near 4.7%. Higher bond yields signal higher inflation, the more the bank of England cut rates the higher yields are.
I suspect a similar situation is unfolding in the U.S., since the Fed cut rates on Wednesday US 10Y yield is higher, yet the stock market is higher. This does not make sense, I think stock investors don’t realise or they think yields don’t matter. The problem is, inflation staying too high could force central banks to remain hawkish and that is not priced in. The majority of people see several cuts in 2025. I think when they realise the cuts are not coming stock markets will sell off. As the stock market is forward looking, the sell off could start at any time.