The Bank of England recently surprised the market with an unexpected rate hike, increasing the bank rate by 0.15% to 0.25%. This was the first increase in three and a half years, following a long period of asset-buying programs and low rates. The decision was made with an 8 to 1 vote in favor, a surprising result given the recent surge in British inflation, which reached a ten-year high of 5.1%, exceeding market expectations by 0.3%.

Despite this rate hike, UK inflation remains lower than in the US. The 0.15% increase is also smaller than the typical 0.25% hike, reflecting the Bank of England's view that inflation has not yet reached extreme levels. The bank also appears unconcerned about any immediate economic threat from the new virus variant, which, despite its low fatality rate, could still disrupt the economy and hinder growth.

The rate hike was influenced by the Federal Reserve's recent policy decision to double its tapering speed, aiming to end asset purchases by March 2022. This move pressured the Bank of England to consider multiple rate hikes within the year. Following the announcement, the British pound rose in market value, though not significantly given its ongoing bullish trend. The GBP-USD pair increased by 0.60%, while the EUR-GBP pair remained unchanged. The GBP-JPY pair rose by 0.49%. However, the FTSE 100 index fell by 0.29%, indicating the market's mixed reaction to the news.