Graeme Wearden until 2. Thursday 2 November The slump in the pound as the Bank of England hinted any further rate rises were not imminent helped push the FTSE just shy of a new record close. Sterling continues to suffer, after Mark Carney insisted that future rate rises would be gradual and limited. The pound is dropping after the Bank of England hiked interest rates https: Elsewhere the picture was more mixed, with markets undermined by a rising euro.
The closing scores in Europe showed:. The market has delivered yet another salutary lesson on why not to invest on the basis of macro-economic events like an interest rate rise. Even if you guess the right outcome, predicting the effect on asset prices is a different ball game. In theory an interest rate rise should be positive for the pound and the banking sector, and negative for gilts and the FTSE Today the pound fell, as did Lloyds and RBS shares, while gilts and the broader Footsie rallied, turning the investment textbook on its head.
This is largely because markets wanted more than a rate rise from the Bank of England today, and were pricing in a more hawkish stance on the future path of monetary policy. Markets therefore have had to retrace their steps and pare back some of the price movements we have seen in misplaced anticipation of a more hawkish Bank of England. Looking forward rates can be expected to rise slowly and gradually, unless there is a very negative, or indeed a very positive, Brexit surprise.
That will be supportive of equity markets and continue to offer little protection to cash savers from the ravages of inflation. In other words, not that much has changed. After today's hike we expect BoE to go into wait-and-see mode.
Even if data is firm, will avoid policy fine-tuning. Expect next one in The UK interest rate rise should not have a huge impact on the economy, and there is not likely to be another increase in the next year, says ratings agency Fitch:.
The BoE looks set to tighten policy slowly, but the first UK rate hike in over decade highlights how shrinking output gaps and tighter labour markets are pushing central banks towards interest rate normalisation Fitch has for some time been expecting the post-referendum interest rate cut to be reversed, although in our most recent Global Economic Outlook September , we expected this to happen in early We think another increase is unlikely in the next 12 months, given the impact of Brexit uncertainty on the outlook for investment.
But it remains to be seen how firms and households adjust to a shift in the monetary policy stance after such a long period without a rate rise. The full Fitch statement is here. Every weekday morning, Business Today will deliver the biggest stories, smartest analysis and hottest topics, direct to your inbox. You can sign up here. The index is up 0. The fall in sterling of course has provided the support for the index, with the pound down 1. But Capital Economics believes the markets may be underestimating the situation:.
We continue to think that the markets are underestimating how quickly rates will rise in the UK, though, as the economy weathers the uncertainty over Brexit well. Only one further 25bp increase is discounted in the overnight indexed swap OIS market between now and the end of , whereas we anticipate that there will be three — taking Bank Rate to 1.
Admittedly, investors might be anticipating rather more tightening next year than is implied by OIS rates. This is because the future overnight rates implied by these financial market instruments include term premiums, which may be negative. For this reason we think that UK monetary policy will provide some renewed support to sterling before long. Sterling likely to recover, as Bank of England proves not so dovish after all. The continuing fall in the pound has re-energised the FTSE , which is packed full of overseas earners who should benefit from a weaker sterling.
The leading index is now up 0. And there is only another half an hour or so of trading to go. It is now at a three and a half week low against the dollar, and on track for its biggest one day fall against the euro in 13 months.
The MPC voted for a 25 basis points increase in Bank Rate, thereby reversing one of the three stimulus measures injected by the Bank last August in response to the EU referendum result.
Inflation however, has exceeded the target and is now set to rise above 3 per cent in October. Although better-than-expected, economic growth overall is subdued compared with history. The MPC has also signalled a gentle rate hiking path that is similar to our forecast published yesterday.
We expect the policy rate to rise by 25 basis points every six months until the Bank Rate reaches 2 per cent in More details are due shortly. Craig Erlam, senior market analyst at Oanda, said:. The Dow Jones Industrial Average is currently up just 0. Yorkshire Building Society says standard variable rate mortgages will rise by 0.
Savers get the full rate with 0. Mike Regnier, chief executive at Yorkshire Building Society, said: TSB says it will raise rates by the full amount on its variable rate savings, mortgage and base rate linked credit card accounts, putting customers back into the position they were at in August before the Bank cut rates by 0.
The changes will come into effect on 30 November for credit card customers, and the next day for mortgage and savings accounts. On savings accounts, HSBC said: Barclays also said it was reviewing the situation.
Meanwhile Nationwide Building Society had already said it would increase savings rates by 0. Official borrowing costs are now back to where they were between early and August , when there was an emergency cut in rates following the Brexit vote.
The Bank was keen to point out that it was still providing help to an economy that has weakened noticeably since the turn of the year, just not quite as much stimulus as hitherto. Against the dollar, the pound is down 0. The sterling index in on track for its biggest one day fall in almost five months, according to Reuters, down 1. And while the fall in the pound is supporting the FTSE - chock full as it is of overseas earners who benefit from weak sterling - the leading index is off its best levels.
With the Bank warning about the economy amid Brexit uncertainty, the index is up 0. The Bank of England has raised Bank Rate from 0. The rate rise is designed to pull inflation down, protecting households from the rising cost of living.
The moves has already been criticised by the TUC , which says: Surprisingly, the pound has fallen sharply since the announcement. Bank of England's trade-weighted sterling index on course for its biggest one-day fall in almost 5 months pic. It is pushing inflation up and weighing on business investment. Carney was pretty clear that interest rates will remain at lowish levels for a while:. Even with this Bank Rate increase, many households will re-finance onto lower interest rates than they are currently paying by around 30 basis points for those moving from an expiring two-year fixed rate deal to around two percentage points for someone refinancing an expiring five-year fixed rates deal.
It will mean an increased squeeze on consumers with loans and mortgages, thus nipping their spending and in turn affect the economy. Mark Carney also offered the hope that real wages, which are currently shrinking, will rise in Key events Show 5. Barclays and HSBC wait 2. The closing scores in Europe showed: The FTSE finished up Facebook Twitter Google plus. Expect next one in November 2, But Capital Economics believes the markets may be underestimating the situation: Craig Erlam, senior market analyst at Oanda, said: It had said its mortgage rates would also increase in line with the base rate rise.
His full piece is here: Mark Carney defends Britain's first rate hike in a decade. Topics Bank of England Business live. First interest rate rise in 10 years adds to UK mortgage burden. The Bank of England could no longer bottle it over an interest rate rise Larry Elliott. Order by newest oldest recommendations.
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