BoE Confirmed! Interest Rates Raised to 0.75% Investors Shed Tears

Stock market went down after hearing of an unanimous vote to raise interest rates to 0.75%

An unexpected unanimously result of 9-0 votes on August 2, 2018 (local time) from Bank of England to increase interest rates to 0.75%, but Mark Carney stated that the policy should “walk not run”, which implied to no further raise for now since Britain is going for the Brexit next year with unsettled plan for leaving the EU.

Carney later told that one rate rise a year for the next few years was a good rule of thumb for the public, as long as there is no major Brexit shock for the economy.

The increase in borrowing costs looks minimal compared with the average 5 percent rate before the financial crisis. But business groups criticized the decision, which comes when there is so little clarity on Brexit. The British Chambers of Commerce called it ill-judged and the Institute of Directors said the BoE had “jumped the gun”.

The central bank said inflation in two years’ time was most likely to be 2.09%.

However, markets now price in a greater than 50 percent chance that the BoE will raise rates again by May next year, shortly after Britain is due to leave the EU.

The BoE forecast that Britain’s economy would grow by 1.4 percent this year, unchanged from its view in May, but it nudged up its 2019 forecast to 1.8% from 1.7%.

 

European stock market fell after the announcement.

Stoxx Europe 600 closed at 386.64, fell 0.8%.

Germany’s DAX Performance Index closed at 12,546.33, fell 190.72 (-1.50%)

France’s CAC 40 Index closed at 5,460.98, fell 37.39 (-0.68%)

London’s FTSE 100 closed at 7,575.93, fell 76.98(-1.01%)