Apparently the BoE raises interest rates in order to attract investors back into buying UK bonds. A higher interest rate lowers the yield. Which, contrary to what it might sound like, is apparently a Good Thing. I found this a puzzling notion but found a handy idiot's guide to bond yields:
It had a very good, simple table to illustrate it but unfortunately its formatting is such that I can't out it on here as an image. So you'd have to follow my link to see it.
Start
Government bonds are frequently traded on bond markets. Therefore, their market price may be quite different to the original price set by the government.
Example. A government may sell a 10 year, £1,000 bond at 5% interest. This means every year the government will pay £50 to the holder of this bond.
If demand for government bonds rose, this £1,000 bond would increase in price as investors pushed up the market price.
But, the government still pay £50 a year interest until maturity. If the market price of the bond rises to say £2,000, the interest rate (yield) is now 2.5% (50/2000)
Therefore higher demand for bonds leads to lower bond yields.
Conversely, if people sell bonds, this pushes up the bond yield (e.g. what happened in Greece)
End
www.economicshelp.org/blog/5604/economics/uk-bond-yields-explained/
A problem with raising the interest rates is that the BoE has already foolishly raised them to solve an inflation problem that we don't have; that of too much money chasing too few goods. We don't have too much money in the economy, we don't have enough. Two lots of interest rises are just going to make a bad situation worse.
It seems doubtful to me that 'investors' will want to buy our bonds as we seem so very incompetent at handling our economy.
