Sterling plunges after the Bank hiked interest rates: How the City reacted

The pound dropped dramatically by almost one per cent against the dollar in the moments after the Bank of England raised the base rate for the first time in 10 years.

Sterling fell 0.91 per cent against the dollar, and 1.32 per cent against the euro after Threadneedle Street's decision was announced.

Seven members of the rate-setting monetary policy committee (MPC), including governor Mark Carney, voted in favour of a 0.25 percentage point hike in bank rate, to 0.5 per cent.

The decision was widely expected, and was believed to be priced in by markets.

This is how City experts reacted:

Right to raise

"The MPC is right to raise interest rates, even though economic growth has been relatively disappointing so far this year. Other economic data – in particular high inflation driven by the weakness of the pound and the low level of unemployment – are much more supportive of a rise in interest rates," said Andrew Sentance, senior economic adviser at PwC.

"In addition, the MPC faces a long-term challenge of raising interest rates back to some sort of normal level after an exceptional and unprecedented decade of low rates since the financial crisis.

"This month's MPC decision is an important signal to the public that the era of very low interest rates is coming to an end. Further interest rate increases should be slow and gradual, but this is the first step along that road."

Limited implications

"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, when policy rates rose more swiftly and more sharply after they reached their previous floors. Given the anticipated slow and gradual monetary tightening in the UK, we expect the credit implications for UK issuers to be limited," said Colin Ellis, Moody’s managing director and chief credit officer EMEA.

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