FTSE 100 and GBP soar as Bank of England hikes interest rates

  • The Bank of England on Thursday announced an interest rate hike from 0.1% to 0.25%, the first time the UK central bank was raising rates since 2018.

  • The rate hike comes a day after UK inflation was shown to have risen to a 10-year high over the past year.

  • The FTSE 100 was surging, up 1% on the day even as the pound gained against the dollar.

The Bank of England has raised interest as the country looks to navigate rising inflation, which was this week shown to have spiked to a 10-year high of 5.1% in November.

The BoE’s Monetary Policy Committee voted to raise the rate by 15 basis points, increasing it from a historic 0.1% low to 0.25%. As well as moving to hike the cost of borrowing, the MPC unanimously agreed to retain the UK’s bond-buying program at 895 billion pounds (about $1.16 trillion).

Today’s surprise increase happened despite fears across the market in relation to the Omicron Covid-19 variant, which economists say could hinder the economy by limiting consumer expenditure even more.

However, it appears the MPC moved to act after the Federal Reserve announced Wednesday it would speed up its bond-buying program and penciled in a possible three interest rate hikes in 2022, and the IMF urged the BoE to avoid inaction.

Wall Street had rallied after the news hit the market, with the Dow Jones Industrial Average, the S&P 500, and Nasdaq edging higher led by a rebound in tech stocks. The FTSE 100, which closed 0.7% lower on Wednesday, has surged as investors digested the possible scenario played out by the double central bank news.

FTSE 100 and GBP surge on BoE news

After an initial downside spurt, the FTSE 100 index is up 1.04% as of 14:40 GMT. Stocks of major banks in the UK shot up on the BoE news, with Barclays and Standard Chartered spiking over 4%.

In currencies, the Pound has soared to $1.336, with the GBP-USD pair up 0.77% even as the dollar index wavers after a strong showing on Wednesday.

Inflation is a key concern for the BoE, which appeared to temper any would-be anxiety from investors by suggesting that its possible rising prices will remain an issue over 2022.

According to the bank’s statement, UK inflation will continue to hover around the 5% level through winter, with the bank expecting a peak around spring of 2022 when inflation would hit almost 6%.

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