The Bank of England has increased policy rates to 0.5%, a decision that was 90% priced in to the interest rates futures market and should come as no surprise. Investors in the FTSE 100 should remember that company earnings are more responsive to changes in global financial conditions and the sterling exchange than UK base rates per se.
Rathbones: initial reaction to interest rate rise
2 November 2017
“The Bank of England has increased policy rates to 0.5%, a decision that was 90% priced in to the interest rates futures market and should come as no surprise. Investors in the FTSE 100 should remember that company earnings are more responsive to changes in global financial conditions and the sterling exchange than UK base rates per se. Global financial conditions are still easier now than they were a year ago, and the exchange rate is still much weaker. Unsurprisingly then, the FTSE has continued to rise meaningfully in the 18 months after the start of the last seven Bank of England rate rising cycles.
“Regardless, we do not believe that this will be the start of a sustained cycle of rate rises and Mark Carney announced that they expect to raise the Bank rate only another two times by 2020. Monetary policy is a trade-off between growth and inflation. To assess where interest rates are likely to go it is worth asking, does growth need supporting more than inflation needs dampening? Leading indicators of the economy remain weak and our analysis suggests that inflation has already peaked and will fall meaningfully over the next two quarters without any help from the Bank.”
Edward Smith
Asset Allocation Strategist
Rathbones
For more information, please contact:
Madhu Kalia
Intermediary PR (UK/Europe)
Rathbone Unit Trust Management
020 7399 0256
07825 596302
madhu.kalia@rathbones.com
Sam Emery/Hugo Mortimer-Harvey
Quill PR
020 7466 5056/5054
sam@quillpr.com
hugo@quillpr.com