Yahoo Finance FTSE rises as Bank of England ups interest rates to 0.75%
The FTSE 100 (^FTSE) outperformed against its peers on Thursday as the Bank of England (BoE) hiked UK interest rates for a third time in a row.
Members of the bank's Monetary Policy Committee (MPC) voted by a majority of 8-1 to raise interest rates to 0.75% in a bid to dampen soaring inflation.
Rates are now at the highest level since March 2020 at the start of the pandemic
London's benchmark index rose almost 1.3% by the end of the session, while the French CAC (^FCHI) was trading flat and the DAX (^GDAXI) was 0.4% lower in Germany.
Economists expected Threadneedle Street to increase the cost of borrowing despite Russia's invasion of Ukraine.
"At the previous meeting the MPC was divided over whether to carry out a 0.25% hike or go for a double 0.5% rate hike, narrowly favouring the former. However last month’s hawkish dissenters fell back into line at today’s meeting, after the war in Ukraine prompted a more cautious approach amid fears of an economic slowdown," said Victoria Scholar, head of investment at Interactive Investor.
However, the announcement knocked the pound (GBPUSD=X) slightly, with the future pace of interest rate increases in question.
Walid Koudmani, chief market analyst at XTB said: "The pound took a hit following the decision as markets seem to have been wanting more – either a bigger rate hike or a clear indication of more rate hikes in the future. GBPUSD dropped from around 1.3200 to 1.3130 while EURGBP spiked to 0.8400."
Elsewhere, European car sales fell to their lowest level on record in February amid continued supply chain disruptions.
According to the European Automobile Manufacturers’ Association, registrations of new vehicles dropped 6.7% to below 720,000, driven by double-digit declines in Italy and France.
Across the pond, the S&P 500 (^GSPC) rose 0.5%, and the tech-heavy Nasdaq (^IXIC) climbed 0.3%. The Dow Jones (^DJI) edged 0.4% by the time of the European close.
It came as average US mortgage rates surged last week from 3.85% to 4.16%, topping 4% for the first time since 2019.
Last night, the US Federal Reserve raised US interest rates for the first time since cutting them to record lows in 2020. Consumer prices in the US have soared by 7.9% in the last year, with expectations for up to six more hikes before the end of this year.
Watch: Fed meeting: A recap of Jerome Powell’s press conference
Richard Hunter, head of markets at Interactive Investor, said: “These will become increasingly necessary in the ongoing battle to rein in inflation, with comments from the Fed reassuringly noting that the US economy is currently strong enough to absorb such increases without derailing its recovery,”
“The rally improved the fortunes of the major indices in the US, although each remain in negative territory for the year to date, with losses of 6.3% for the Dow, 8.6% for the S&P 500 and 14.1% for the Nasdaq.”
Asian markets rallied again on Thursday, after Beijing pushed to stabilise markets, with another surge in tech firms helping Hong Kong extend its recovery.
The Hang Seng (^HSI) jumped more than 7% in Hong Kong overnight, while the Shanghai Composite (000001.SS) rose 1.4% and the Nikkei (^N225) climbed 3.5% in Tokyo.
