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WHIreland and Oanda speak exclusively on their thoughts on today's rate rise

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Here’s what they said

Speaking exclusively to LondonLovesBusiness these two companies had this to say on today rate rise by the Bank of England.

 

Commentary from John Goodall, Head of Private Client Research at WHIreland, exclusive to London Loves Business, said:

“Following recent communication from the Bank, it is no surprise that they raised rates today.

With a 25-basis point increase largely priced into futures markets, failure to have acted today would have been damaging to the Bank’s credibility, especially after many false starts in the past.

However, we do not believe it represents the beginning of a significant upward movement in the interest rate cycle.  There is limited scope to increase rates significantly.  The outlook for growth is weak and uncertain, especially in light of Brexit.  The economy has become reliant on low interest rates so any significant upward move is likely to send the economy into recession. 

Without an upturn in productivity, growth will stay low and Japan is likely to provide the best template for the future.”

Craig Erlam, Senior Market Analyst of Oanda said exclusively to LondonLoveBusiness:

“The controversial decision to raise interest rates at a time of significant economic uncertainty unsurprisingly left Mark Carney on the defensive throughout his press conference on Thursday, as reporters repeatedly questioned why the central bank decided it was the appropriate time for the first rate hike in a decade.

“Naturally the decision on whether the raise interest rates is far from straightforward with inflation significantly overshooting the central bank’s two per cent target and the labour market in good shape, while at the same time the economic outlook is uncertain at best and real incomes are already being squeezed.

“While the MPC has been divided on the correct course of action in recent months, the pendulum eventually swung in favour of the hawks with some policy makers clearly of the belief that they had reached the limitations of how much inflation they could stomach.

“As can be interpreted from the market reaction though, the rate hike came with quite a dovish twist. Policy makers refrained from including language in the statement that suggest markets were behind the curve on rate hikes which would indicate that two over the next three years is expected, which would represent an extremely gradual tightening process.

“Given the assumptions that the central bank has on labour market slack and the relationship with wages and inflation, it’s possible that even two hikes may be a little punchy. The experience of the Fed would certainly support this view.

“All things considered, the view appears to be that the BoE has taken a risky and unnecessarily step in raising interest rates today, one they may regret and be forced to reverse over the next year or so. Even if this is avoided, with the rate now back at the level the central bank deemed the lower bound for seven years prior to the Brexit referendum, we may be waiting some time for interest rates to rise again.”




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