The Bank of England has voted to make a surprise 0.5% increase in benchmark interest rates to 5%. Consensus estimates were for a 0.25% rate hike.
The Bank of England voted 7-2 in favour of a 50bps rate hike citing concerns about stubbornly high levels of inflation.
“With inflation holding firm at 8.7%, the Bank of England had little choice but to press ahead with another interest rate rise,” said Rachel Winter, Partner at Killik & Co.
“This decision will lead to more pain for those on variable rate mortgages or with fixed deals about to expire, and disappointment for those hoping to borrow to buy a new property. Shares in housebuilders sagged on Wednesday as investors feared that further interest rate rises would reduce demand for homes.”
Some economists now predict the impact of higher mortgage rates and other borrowing costs will push the UK into recession.
In the immediate market, the FTSE 100 fell towards session lows and GBP/USD whipsawed as traders weighed the consequences for the UK economy.
FTSE 100 movers
Ocado was the standout performer on Thursday after The Times reported Amazon could be lining up a bid for the premium food retailer. Ocado shares were over 30% higher at the time of writing.
Concerns about the implications for the UK economy battered the FTSE 100’s domestically facing sectors.
Housebuilders were down heavily, as were the UK banks. Persimmon was off around 3% while NatWest, Lloyds and Barclays fell between 1%-3%.
A plethora of FTSE 350 traded ex-dividend and Airtel Africa was the FTSE 100’s biggest faller, down 6%, as the stock traded without the rights to a 3.27 cents dividend.
