Bank of England Increases Interest Rates for the First Time in a Decade
03 November 2017 by News DeskThe Bank of England (BoE) made the decision to hike interest rates on Thursday in the first upward adjustment since the Global Financial Crisis (GFC). Policymakers voted 7-2 to increase rates, with Deputy Governors Sir Jon Cunliffe and Sir Dave Ramsden both opting to keep rates on hold. Policymakers had been forced to cut rates last year after the Brexit referendum, to help the economy cope.
However, despite rates moving higher, the central bank removed its previous warnings that rates might rise quicker than forecast, instead hinting at only gradual and limited adjustments in the next few years. The minutes read: ‘The MPC [Monetary Policy Committee] now judges it appropriate to tighten modestly the stance of monetary policy in order to return inflation sustainably to target. All members agree that any future increases in Bank Rate will be at a gradual pace and to a limited extent.’
Furthermore, BoE Governor Mark Carney held a press conference after the announcement and defended the decision to move rates higher despite households undergoing a squeeze. Carney said: ‘To be clear, even after today’s rate increase, monetary policy will provide significant support to jobs and activity. And the MPC continues to expect that any future increases in interest rates would be at a gradual pace and to a limited extent.’ Carney also stated that Brexit was having a ‘noticeable’ effect on the economy.
The pound dropped against other currency majors yesterday, registering losses of around -2.0% versus the Aussie dollar at some points during trading. The Aussie also made advances against the US dollar (around +0.6%), the Japanese Yen (around +0.5%), the New Zealand dollar (around +0.2%), and the Japanese Yen (around +0.2%).
However, Friday brought with it news that Australian retail sales came in flat on the month. Retailers found shoppers subdued in September, with sales coming in at 0.0%, despite analysts expecting a rise to 0.4%. Annual retail sales are trailing along at 1.4% – the slowest pace of growth since the Global Financial Crisis (GFC).
Wetpac economists Matthew Hassan commented: ‘The picture from the report is an unambiguously bad one for retailers who are cutting prices but finding no tracton with volumes. The picture is not quite as bad for consumers who get some advantage from lower prices and do not look to be cutting back on consumption quite as sharply as feared.’
The pound to euro (GBP/EUR) exchange rate is currently trending in the region of 1.1201. The pound to Australian dollar (GBP/AUD) exchange rate resides around 1.7037.
Disclaimer: This economic update is provided by FC Exchange a Global Reach Group Company, industry leaders in foreign exchange. Authorised affiliates are permitted to reuse content.
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