Markets

FTSE 100 watch: Footsie stays in the red after BoE rate decision

FTSE 100 watch: Footsie stays in the red after BoE rate decision

The Bank of England made a decision to stand pat on rates on "Super Thursday" as widely expected, but hinted at somewhat earlier- and deeper-than-expected rate hikes. It is still likely that we will see at least one quarter point rise in 2018 and possibly two or three'.

Sterling spiked 0.8% to $1.399 and 0.3% to €1.345 against the euro after the announcement, while the FTSE 100 is down nearly 1% to 7,210 points.

Governor Carney warned markets in a press conference to "expect that in order to return inflation sustainably to target.it will probably be necessary to raise interest rates. somewhat earlier and to a somewhat greater extent than we had thought in November".

Many savings accounts are already loss-leaders for banks and building societies and so they are less likely than mortgage lenders to pass on any rise in interest rates.

The central bank's boss, Mark Carney, said on Thursday that United Kingdom interest rates may rise sooner and by a bit more than previously anticipated.

The BoE's rate-setters gave themselves time to assess how Britain is coping with the approach of Brexit by voting unanimously to hold Bank Rate at 0.5 percent, as expected.

That we are now moving - albeit very slowly - to what is a more "normalised" interest rate environment is undeniably welcome. The Dow Jones fell by over 4% for the second time this week as the hawkish Bank of England reignited concerns about higher interest rates globally.

The BoE said it wanted to return inflation to its 2 percent target over "a more conventional horizon", which would mean curbing price growth within two years rather than three.

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But it now appears there could be a third increase and those rises could be sooner than expected. However, this is below expectations for global growth of almost 4% over the same period.

Unemployment is at its lowest for 43 years and, finally, wages are starting to pick up - as one would expect when the jobless rate is so low.

When more clarity emerges over what Brexit actually will entail when Britain leaves the European Union in March 2019, Carney said the Bank of England will need to adjust its forecasts.

"At the moment, November's upward move in Bank Base Rate does not feel like it was a turning point in interest rates, and, in any case, defined benefit pension scheme stakeholders will be conscious that increases in Bank Base Rate in isolation do not necessarily directly lead to increases in long term gilt yields, and so may not have a material positive impact on funding issues".

Hawkish BoE Message Prompts GBP CAD Exchange Rate UptrendThe quarterly Inflation Report offered the Pound further cause for confidence, with the BoE revising its economic forecasts higher.

He has additionally hinted at raising United Kingdom interest rates in the near-future, assuming that Brexit negotiations continue to go smoothly.

The chancellor replied by stressing the importance of boosting United Kingdom productivity and the government's efforts to make that happen.


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