Bank of England rate rise – reaction round-up

The Bank of England today announced the first interest rate rise in a decade, with the base rate up a quarter of a percentage point, from 0.25% to 0.5%.

As reported, the move had been widely expected and comes after last year’s cut from 0.5% following the Brexit referendum.

There was strong support for the move within the Bank, with the nine-person Monetary Policy Committee supporting it by a majority of seven to two.

Reaction has ranged from dismissing it as “largely symbolic” to calling it “an odd decision”. Here is the International Investment round-up of views and commentary from some leading financial industry professionals…

Reaction from the industry

Lucy O’Carroll, chief economist at Aberdeen Standard Investments
“The symbolism of this hike is more significant than its economic impact.

“UK interest rates are still exceptionally low by historic standards.

“The risk is that this is interpreted as the start of a cycle of rate hikes, which could knock consumer confidence at a particularly vulnerable time for the economy.

“Inflation has risen sharply, but this is down to temporary factors.

“The fact remains that wages are not increasing much and nor are underlying prices, so further substantial rate rises would not be warranted at this stage.”

 

Patrick Connolly, certified financial planner, Chase de Vere 

“In theory rising interest rates are bad news for stock markets.

“With the cost of borrowing increasing, individuals and businesses are both likely to have less money to spend on goods and services because they are paying more on mortgages and other debt.

“An environment where individuals and businesses have less spare money will be bad for some shares, such as technology and consumer discretionary stocks which include non-essential purchases like leisure and entertainment.

“Interest rate rises are also likely to hit bond proxies, which provide a consistent level of income and have been bought by many investors as an alternative to expensive fixed interest assets

“This would include shares such as utilities and consumer staples like companies providing food, beverages and household items. These companies can perform well in any economic environment, but the value of their dividend stream becomes less attractive in a rising interest rate environment.

“However, there are many companies that can thrive in a rising interest rate environment.

“This is especially the case when you consider that the UK has started to increase interest rates because the economy is looking in reasonable shape. This can provide a positive environment for companies to perform well and make profits.

“Today’s interest rate rise has been heavily signposted and priced in by markets and any further rises are likely to be slow and gradual, so there shouldn’t be any nasty surprises.

“Rising UK interest rates will, in theory, make sterling stronger, which will benefit UK importers and be negative for UK exporters.

“It is incredibly difficult to predict interest rate movements, as we have seen over the past decade, many ‘experts’ have tried and failed.

“We don’t know for sure whether today’s rate rise will prove to be a one-off or if it is the first of many. However, what we can say with some confidence is that any further rate rises are likely to be slow and gradual.

“The best approach for investors is to try not to be too clever. They should hold a balanced and diversified investment portfolio including equities and fixed interest, which can achieve their objectives regardless of what happens to interest rates in the future.

ABOUT THE AUTHOR
Eugene Costello
Eugene Costello has been a journalist for some 20 years, and has written for a wide variety of UK and international newspapers and magazines.

Read more from Eugene Costello

preloader
Close Window
View the Magazine





You need to fill all required fields!