Bank of England Raises Rates to 4%, While Distressed High-Yield Debt Sells Off Amid Rising Risks

The Bank of England's Monetary Policy Committee voted to increase the Bank Rate by 25 basis points to 4%, with one member advocating for a 50 basis point hike. This decision comes as UK inflation rose to 3.5% in September and is projected to exceed 5% by mid-2027. Concurrently, distressed high-yield debt is experiencing a significant sell-off, leading to investor losses, with CCC-rated yields climbing to 21% in Europe and 18% in the US. Concerns over higher rates, AI disruption, and energy costs are contributing to growing private credit risks, with a record 112 borrowers defaulting in Q3. Cleveland Fed President Beth Hammack also reiterated the need for restrictive rates to achieve the 2% inflation target.