UK interest rates: Pound sterling drops sharply after Bank of England hike

The pound was trading down 0.82 per cent against the dollar after the Bank of England’s monetary policy committee voted unanimously to hike the base rate from 0.5 per cent to 0.75 per cent.

Sterling had been trading down around 0.4 per cent earlier in the session and appeared to reverse those losses in the immediate aftermath of the decision. However, the currency took another dip and fell to $1.3020 an hour after the Bank announced its decision.

The pound also dropped against the euro, tumbling by 0.34 per cent to €1.122.

Sterling’s decline coincided with the Bank’s press conference, during which governor Mark Carney said Threadneedle Street would continue to follow a strategy of “ongoing, limited and gradual tightening of monetary policy” in order to keep inflation within target. He added that this could lead to three further rate rises over the next three years.

“Despite the intentionally hawkish signals it appears that traders aren’t buying it, with a failure for sterling to gain on what is, on the face of it at least, a positive hawkish message, a potentially ominous warning sign for the currency going forward,” said David Cheetham, chief market analyst, at brokerage XTB.

“Looking ahead, the curve has barely budged on today’s news with a further hike before year-end still seen as highly unlikely and an additional increase not priced in until September 2019.”

Jordan Hiscott, Chief Trader at ayondo markets, said it was notable that sterling had fallen “despite the fact the market had priced in the expectation of a 0.25 per cent rate hike”.

“A couple of things stand out for me. Firstly, the recent economic data is not consistent enough to warrant a rate increase and future near-term increases. Brexit and the fractious nature of negotiations will likely also affect this

“Secondly, the last time the MPC voted unanimously to increase rates was May 2007, and that didn’t turn out too well then.”

Business groups were critical of the central bank’s decision to hike, with the IoD’s senior economist, Tej Parikh, saying: “The rise threatens to dampen consumer and business confidence at an already fragile time.”


UK interest rates: Which banks and building societies have passed on increase to customers?

Savers may have to wait months to see the benefit as lenders keep rates low…

 

After the Bank of England’s interest rate hike on Thursday, some high street lenders have again been quick to pass on the increase to their mortgage customers, but many have been less keen to boost savings rates at the same time.

Alistair Wilson, head of retail platform strategy at Zurich, said it could take months before savers see the impact of the rate hike “as with last November’s quarter of a per cent increase, which has only resulted in an average 0.07 per cent rise on easy access accounts.”

HSBC said its tracker mortgages would go up 0.25 per cent on Friday to reflect the base rate while its other mortgage and savings rates will be reviewed.

A spokesperson for HSBC said its savings rates were “not directly linked to the Bank of England base rate”, but said customers will be informed of the outcome of the review “at the earliest opportunity”.

Virgin Money has increased the rate on its tracker mortgage by 0.25 per cent.

RBS, which owns both NatWest and Ulster Bank, has raised the interest rate on its rate-linked products by 0.25 per cent and said it is reviewing its variable rate products.

An update will be provided “ shortly”.

Lloyds Banking Group, which includes Halifax has not yet made any announcement on its variable rate but said: “The 0.25 per cent Bank of England base rate increase will form part of the ongoing rate reviews across our product ranges.”

Rate tracking products will be increased by 0.25 per cent from September, Lloyds said.

Barclays said variable mortgage rates will increase to 5.24 per cent from 4.99 per cent from 1 September. Buy-to-let variable rates will rise to  5.74 per cent 5.49 per cent on the same date and trackers will rise 0.25 per cent.

Santander said it is reviewing all variable rates.

All tracker mortgage products will move in line with the change and base-rate linked loans to UK businesses linked to the base rate will move in line with the change and in accordance with the terms of the deal.

All savings products linked to the base rate will move in line with the increase from the end of August.

A Santander spokesperson said: “When we review rates, we consider both the interest we charge for borrowing money, and the rate of interest we can offer on deposits.”

Mark Carney signals ‘earlier’ interest rate hikes for the UK

TSB said it was reviewing its variable interest rates on mortgages and will make an announcement as soon as possible.

Yorkshire Building Society will raise variable savings rates by 0.25 per cent on variable savings accounts from 14 December. “As a mutual which is owned by its members, it is our priority to deliver highly competitive and sustainable rates for both our savers and borrowers,” the lender said.

Nationwide has not yet announced rates, while the Post Office will raise its variable mortgage rates 0.25 per cent from 1 September.

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East Midlands is Most Confident Region for House Price Growth

Consumer confidence in the housing market has increased by its largest rate since 2016, according to the latest Housing Market Sentiment Survey by Zoopla.

Over eight in ten homeowners (84%) predict house prices in their area will grow by 6.9% over the next six months.

This is a marked increase on the previous survey held in November 2017, when a price increase of 4.9% was forecast by 70% of consumers.

The East Midlands remains the most confident region, with 93% expecting prices to rise compared to 79% in November’s survey, closely followed by the East of England (90%).

Although North Eastern homeowners have the least optimism, market confidence has nearly trebled in the region from 22% in November to 63%. In London, 76% of consumers are anticipating prices in the capital to grow.

However, in terms of the rate at which prices are predicted to rise, homeowners in the West Midlands are the most optimistic, predicting property prices in the region will grow by 10.6% in the next six months.

Zoopla believes that the rise in confidence is a result of wider activity in the housing market, due to a seasonal increase in momentum.


Inflation and poor growth see Bank of England ditch rate rise plans

Interest rates could stay low for as long as another two years, as falling inflation and weak economic growth force the Bank of England to scrap plans to push up rates in the coming months.

Mark Carney is expected to hold rates at 0.5pc at Thursday’s Monetary Policy Committee meeting, postponing a highly-anticipated rate rise for at least three months. The freeze will disappoint savers who have laboured under historically low rates for almost a decade – and a boon to borrowers who get extra time with cheap money.

But economists now suspect that inflation will keep falling quickly towards the Bank’s 2pc target, making it harder for policymakers to raise the rate.

Poor GDP growth at the start of this year and signs of a slowing global economy could also dent the Bank’s longer-term inflation estimates.

If that forces it to cut back its inflation forecast then the case for higher rates could evaporate altogether.

“They are stuck. The Bank can’t raise rates now, the economic numbers have been too weak recently,” said Martin Beck at Oxford Economics. “They should not have raised rates in November, closed the term funding scheme or worried that credit growth was too strong – those three things have contributed to the economy slowing.”

Markets are currently pricing in only two rate rises by August 2019, but George Buckley, an economist at Nomura, thinks even this may be too many if inflation is slowing sharply.

“Should the Bank publish a forecast with inflation below target based on market rates that would be quite a statement, as it would imply that even limited market pricing for rate hikes might prove too much,” he said.

UniCredit’s Daniel Vernazza believes it will be at least another year before rates rise to 0.75pc.

Kallum Pickering at Berenberg Bank fears the Bank has missed its chance. “They should have hiked by this stage of the economic    cycle, but they cannot do it now because of the soft data,” he said.


One Third of Millennials Will Continue to Rent in Their Retirement

The number of families with children living in rented property tripled between 2003-2016…

The Resolution Foundation has proposed a series of reforms aimed at protecting tenants and landlords in the private rented sector.

According to the think-tank’s research, half of all millennials – people born between 1980 and 1996 – will be living in rented property up to their 40s, whilst a third are likely to be renting beyond retirement.

Furthermore, four out of ten millennials aged 30 are already renting, double the rate of the previous generation and four times that of baby boomers, whilst the number of families with children lived in the private rented sector has grown substantially, from 0.6m in 2003 to 1.8m in 2016.

Although they acknowledge the policies the government has introduced to make housing more accessible for first time buyers, the Resolution Foundation argues that more needs to be done to provide greater security for those that rely on renting.

This includes short-term measures such as proposals for indeterminate tenancies, which are essentially open-ended leases. Such tenancies are already in use in parts of Europe, including Scotland.

A new tribunal system could also be created, in order to resolve disputes in a timely and cost-effective manner.

Lindsay Judge, a senior analyst at the Resolution Foundation, notes that support needs to be available across all areas of the housing market: “While there have been some steps recently to support housebuilding and first-time buyers, up to a third of millennial still face the prospect of renting from cradle to grave.

“If we want to tackle Britain’s ‘here and now’ housing crisis we have to improve conditions for the millions of families living in private rented accommodation.”