The BoE interest rate rise: an ‘unreliable boyfriend’ who has finally delivered?

Mark Carney Bank of England

Today the bank of England announced it would base interest rates from 0.25% to 0.5%. We have collated some initial comments from the industry on how this will impact the markets:

 

David Lamb, head of dealing at FEXCO Corporate Payments, comments:

“The ‘unreliable boyfriend’ has finally delivered, but it was far too half-hearted for the currency markets’ taste.

“Mark Carney’s prolonged campaign of hints had built market expectations up to such an extent that anything less than a full-blown hawkfest would be a disappointment – and so it proved.

“So despite the 10-year wait, the Bank of England’s dovish interest rate rise has proved an anti-climax for the Pound.

“The Monetary Policy Committee (MPC) minutes confirm there has been no Damascene conversion of the rate-setting committee’s doves.

“Despite voting for a rise, the Bank’s ratesetters remain deeply worried about the lingering threats to Britain’s economy, and are willing to tolerate above target inflation for an extended period.

“Taken together, these factors mean the Bank will be in no hurry to hike rates further.

“Mark Carney’s press conference talked of any future rises being ‘gradual and limited’, but the markets’ conclusion has been more blunt – ‘one and done’.

“So the net effect has been to deliver a beating for the Pound, which is now losing the gains made as it soared on the pre-hike hype.”


 

Jacob Deppe, head of trading at online trading platform, Infinox, argues:

“Given the amount of column inches generated by Bank of England governor Mark Carney’s warning to expect an interest rate hike sooner rather than later, he would have looked very foolish if the Monetary Policy Committee (MPC) had stayed its hand today.

“The Bank’s Governor may feel he painted himself into a corner having raised market expectations of a rate hike to near fever pitch levels over a matter of several weeks.

“Even if the economic data didn’t support an interest rate rise, it’s likely that having built up such a head of steam Mr Carney would have felt he had no choice but to act.

“While it is largely a symbolic rise, a move upwards of 25 basis points does at least send a signal that the ultra-low interest rate party is over. But it’s worth remembering that interest rates have only risen to 0.50% and that they could stay there for a long time to come.

“Brexit uncertainty is likely to continue to hold back economic growth in 2018 and if inflation has peaked, the case for further rate rises until the economy is on a firmer footing will be weak to say the least. Another rate rise seems unlikely before the Autumn of 2018.”

 


 

Ross Andrews, director of fixed rate bond provider, Minerva Lending, says:

“There was nothing easy about this decision, no matter how many people said it was inevitable. The weather reports being received by the MPC of late could, at best, be said to have been unsettled.

“But after so many hints, it was a case of ‘better the devil you know’. The anxiety felt by firms, had they braced for a rise they were convinced was coming and not been delivered one, would be more counterproductive than the rate rise itself.

“There will be some fallout, particularly for exporters as the pound inevitably strengthens, but there was never going to be a perfect time for this.

“As one set of positive figures has been ushered through the doors of Threadneedle St recently, another kick in the teeth has been rounding the corner, such as the slump in consumer confidence and retail sales last month.

“This is the type of turbulence you must learn to live with in a low interest rate environment when a lot of the emergency exit doors afforded by greater wriggle room are sealed shut.

“Our goods are likely to cost more than they did but that’s not going to stop our economy growing, and that is the bigger prize.”

 


 

Angus Dent, the CEO of p2p business lending company, ArchOver, says:

“This rate rise of 0.25% is largely symbolic. At the same time, it’s also a year too late.

“Dropping the interest rate below 0.5% was the wrong decision in the first place. The Bank should have pushed rates up to 0.75% as a show of strength that would have driven inflation down as the pound rose.

“Although this rise is unlikely to have any major material effects, it is a return to the trajectory we should have been on for the past year, and a good sign for a bolder policy.

“For many, the move towards a higher interest rate will simply mean business as usual.

“Following the financial crash, there is a hunger to make up for ten lost years and UK savers and investors are finally waking up to the realisation that they need to chase higher returns. With interest rates remaining below 1%, this means looking for opportunities to branch out beyond traditional vehicles and introduce greater diversity into portfolios to secure a higher yield.”

 


 

Sudhesh Giriyan, COO of Xpress Money, believes that this may have a bigger impact than to just those living in the UK – affecting economies worldwide through those looking to transfer money abroad through remittance.

Giriyan said: “While the Bank of England’s decision to raise interest rates by 0.25% doesn’t look like a lot on the surface, the potential impact on those working in the UK and sending money across the world to loved ones is massive.

“On one hand, those who have been able to save are going to benefit, as for the first time in a number of years they’ll have a larger return on their money, giving them more disposable income. Remittances could be a benefactor of this.

“On the other, those working off loans and tracker mortgages, could get affected as banks and loan companies may look to use this opportunity to their advantage. It’s really a catch 22 situation, and the impact on the UK and world economies is yet to be seen.”

 

107 views

Related reading

Tags: