Interactive Investor

UK interest rates rise to 0.25%

16th December 2021 12:39

Jemma Jackson from interactive investor

interactive investor comments on pre-Christmas interest rate hike by the Bank of England.

Commenting on today’s interest rate rise to 0.25%, Becky O’Connor, Head of Pensions and Savings, interactive investor, says: "The Bank is sending a clear signal that inflation presents a greater threat than a small interest rate rise to the economy, but for households, a rate rise could be another layer of pain, added to the pain of rising prices and tax rises to come next year. 

"If savings institutions pass this rise on, that's at least some increase in reward to those with savings, including pensioners who depend more heavily on cash, but savings rates are still several rises behind inflation at current rates."

Victoria Scholar, Head of Investment, interactive investor, says: “It was only a fortnight ago that Bank of England hawk Michael Saunders, who was one of just two MPC members to back a hike in November, suggested even he might pause on voting for a rate hike this month in light of the threat of Omicron. However today, many traders have been caught off guard with the unexpected hike, sending the pound and the FTSE 100 sharply higher. The banking sector in particular has caught a bid, with shares in Barclays and Lloyds surging by more than 4%.

“Following this week’s stronger-than-expected UK CPI inflation print, the markets started to price in a much higher probability of a rate hike today. However, with UK interest rate swaps rally into the close yesterday and at the start of today’s trade, there was around a 40% chance of a rate hike priced in this morning.

“It is clear that the Bank of England has listened to the IMF this week, which warned the central bank not to act too slowly and to avoid ‘inaction bias’. The central bank has also clearly been paying close attention to the latest inflation reading with UK CPI at 10-year highs and wholesale inflation jumping the most since records began.   

“There is a growing sense of frustration among traders and investors around the mixed messaging from the central bank, prompting many to label Andrew Bailey as the second unreliable boyfriend.”

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