British government bonds remain Europe's most expensive debt even after the Bank of England raised interest rates, with the 10-year gilt yielding 5.15% — about 188 basis points above Germany's equivalent bond.

The Bank's Monetary Policy Committee voted 8-1 on Thursday 5 November to raise Bank Rate by a quarter of a percentage point to 4%, its first increase since August 2023. Catherine Mann dissented, preferring a half-point rise to 4.25%. The Bank blamed the energy shock from the Middle East conflict, and expects inflation, at 3.5% in September, to reach about 5% by the middle of 2027.

Sterling briefly rose 0.1% to $1.3480 after the announcement, while the euro touched an intraday low of 0.8319 pounds, near its 19-month low. Yields on 10-year gilts rose to 5.148% after the decision, still down 1.2 basis points on the day, according to Tradeweb data.

The long end carries the risk premium

The 30-year gilt rose to 5.63% on 5 November, widening the gap over the 10-year to about 48 basis points. That spread shows investors still demanding extra compensation for holding longer-dated UK debt, pricing in the risk of entrenched inflation in 2027.

By comparison, the 10-year German Bund yielded 3.27% and the French OAT 4.75% on 5 November, leaving gilts about 40 basis points above French debt and 31 above US Treasuries at 4.84%. France's borrowing costs eased even after its parliament rejected the 2027 budget, the OAT-Bund spread narrowing to 148.2 basis points.

Markets had fully priced three more Bank rate rises by November 2027 by the evening of 5 November, though Aberdeen economist Felix Feather said that might overstate the case, while still expecting at least one further hike, probably in February. The Bank's next decision is on 17 December, the same day as the European Central Bank's.