LONDON (Reuters) - The Bank of England raised interest rates for the first time in more than 10 years on Thursday and said it expected only “very gradual” further increases would be needed over the next three years.
Dean Turner, Economist at UBS Wealth Management:
”Today’s decision was almost unanimously expected, but the jury is still out as to whether it’s the right one. Looking at the Bank’s motivations, we don’t necessarily agree that it is...
“In our view, it’s a bit of a gamble to hike at a time when the economy is stuttering and nobody knows which way the Brexit dice are going to roll.”
Aberdeen Standard Investments Chief Economist Lucy O’Carroll:
”The symbolism of this hike is more significant than its economic impact. It just reverses the cut made after the EU referendum, which was aimed at staving off any economic fallout...
“UK interest rates are still exceptionally low by historic standards. The risk is that this is interpreted as the start of a cycle of rate hikes, which could knock consumer confidence at a particularly vulnerable time for the economy.”
”The most important question for Mr Carney is what they will do if Brexit is not as smooth as his forecasts currently allow for... The question will go unanswered today, not least I suspect, because the Bank doesn’t yet have the answer.”
Anna Stupnytska, Global Economist, Fidelity International:
”It is fair to characterise today’s decision as a dovish hike. The statement dropped its sentence that rates may need to rise more than the market expects... It suggests an incredibly slow hiking cycle at best.
“Our view is that this hike was an odd decision. The BoE had painted itself into a corner by talking up the possibility of a November hike, having gone back on its word too often in recent years. It may have been intended to put a floor under sterling and fire a ‘warning shot’ against some pockets of excessive credit build-up.”
Nicholas Brooks, Head of Research and Investment Strategy at Intermediate Capital Group:
“The BoE’s decision to raise its base rate today will likely prove to be a mistake... The main reason inflation has picked up this year is the sharp rise in import prices caused by the large fall in the value of the pound following the Brexit vote. The import price effect will start fading out in the next few months and we will likely see the headline inflation rate start to fall quite quickly, even without BoE intervention.”
Julian Jessop, Chief Economist, Institute of Economic Affairs:
“The Bank of England made the correct decision today and should be ready to raise interest rates further next year, provided the economy continues to weather the impact of Brexit better than most had expected.”
Colin Ellis, Moody’s Chief Credit Officer EMEA:
“UK interest rates are likely to rise only very gradually over an extended period of time. This benign outlook for interest rates differs from past monetary cycles... Given the anticipated slow and gradual monetary tightening in the UK, we expect the credit implications for UK issuers to be limited.”
OANDA analyst Craig Erlam:
“They’ve erred on the dovish side as far as the comments are concerned... There’s nothing in the initial comments that suggest we should expect another rate hike in the next twelve months.”
Maike Currie, investment director for Personal Investing at Fidelity International:
“Mark Carney might finally be able to shake the moniker of the ‘unreliable boyfriend’, following today’s announcement to increase interest rates.”
Anthony Doyle, Fixed Interest Investment Director at M&G Investments:
“Today’s rate hike will have a limited effect on the real economy. Monetary policy remains highly accommodative, real interest rates are negative, and the Bank’s balance sheet remains large. In hiking rates, the MPC has fired a warning shot across the bow of consumers, who have battled low wage growth and high inflation by cutting savings and borrowing more.”
Shilen Shah, Bond Strategist at Investec Wealth & Investment:
“With the slack in the economy now significantly reduced and sluggish business investment limiting the economy’s output potential, even a moderate rate of growth has the potential to generate core inflation in the medium and the long term.”
Christopher Peel, Chief Investment Officer at Tavistock Investments:
“It is the first time in the careers of a generation of UK bond traders and investors that they have witnessed either a rate hike or bear market... Given that the world is currently undergoing a transition to a reflationary environment, the trend towards ‘normalised’ and higher interest rates is just beginning.”
Dave Prentis, General Secretary, Unison Trade Union:
“This rate rise adds insult to injury for public service employees suffering from years of wage freezes and limits on their pay.”
Giles Hutson, CEO of Insignis Cash Solutions:
“The increase of 0.25 percent will start to release the UK from its unsustainable low-rate environment, and help avoid a consumer finance bubble... This will support better long term financial planning, especially when it comes to deciding how much debt a family or company can afford to take on.”
FOREX: Sterling initially rises but then tumbles around 1 percent against the dollar.
BONDS: British government bond yields fall sharply. The 10-year yield drops by 5 basis points and touches its lowest level in two weeks at 1.288 percent.
INTEREST RATE FUTURES: Short sterling interest rate futures <0FSS:> shoot higher by around 5 ticks across 2018 and 2019 contracts, indicating a shallower path for future interest rate rises.
Reporting by Reuters markets team; editing by John Stonestreet