WORLD Bank of England raises rates for first time in a decade

WORLD

Bank of England raises rates for first time in a decade

Reuters staff | Reuters

21:18, November 02, 2017

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Part of the homepage screenshot of Bank of England. (Photo: Bank of England)

The Bank of England raised interest rates for the first time in more than 10 years on Thursday and said it expected only "very gradual" further increases would be needed over the next three years.

Nicholas Brooks, Head of Research and Investment Strategy at Intermediate Capital Group:

"The BoE's decision to raise its base rate today will likely prove to be a mistake... The main reason inflation has picked up this year is the sharp rise in import prices caused by the large fall in the value of the pound following the Brexit vote. The import price effect will start fading out in the next few months and we will likely see the headline inflation rate start to fall quite quickly, even without BoE intervention.

"...What is far more important to the outlook for interest rates is the underlying strength of the economy. Already we’ve seen private consumption slow as real incomes have declined, and business sentiment has weakened on continued concerns about the Brexit negotiations. Unless there is a large breakthrough in Brexit negotiations that convinces businesses that the UK will be able to access the single market beyond March 2019, it seems likely that business sentiment and investment will remain weak.

"...In this environment a 'wait and see' approach by the BoE would seem to make more sense."

OANDA analyst Craig Erlam:

"They've erred on the dovish side as far as the comments are concerned. We have to wait for the press conference but there’s nothing in the initial comments that suggest we should expect another rate hike in the next twelve months.

"It would suggest the market is roughly in line with the Bank of England comments. Expectations were for a 6-3 vote but 7-2 is not far enough from that to be significant.”

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MARKET REACTION:

FOREX: Sterling extends falls after BoE decision.

BONDS: British government bond yields fell sharply. The 10-year yield GB10YT=RR dropped by 5 basis points and touched its lowest level in two weeks at 1.288 percent.

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