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FTSE rises to new record

Bank resists interest rates rise despite US uplift

Money - own picThe Bank of England has decided to keep interest rates at 0.25%, despite rising inflation and an increase in rates in the US.

Monetary Policy Committee members voted 8-1, confirming expectations in the City.

It has also maintained government bond purchases at £435bn and corporate bond purchases at £10bn.

In London, the FTSE 100 surged to another intra-day record of 7,444.62 and after today’s MPC announcement at noon it was trading at 7,436 (up 0.9%). It closed up 47.31 or 0.64% at 7415.95, a new record closing price. It is now up 24% since the Brexit vote.

Sarah Hewin, chief European economist at Standard Chartered, said the Bank is holding off because it expects growth to slow down and higher inflation to squeeze people’s spending.

Tom Stevenson, investment director for personal investing at Fidelity International, said: “Despite the Federal Reserve’s well-flagged rate hike yesterday and the promise of more rises to come, the Bank of England continues to tread carefully. 

“Even with inflation expected to breach the central bank’s 2% target this year and unemployment at its lowest since the 1970s, the Bank is keen to keep rates low ahead of Article 50 and two years of uncertain Brexit negotiations.

“The danger this presents is the Bank getting behind the curve as price pressures increase. When it comes to inflation, you can’t put the toothpaste back in the tube.” 

The US Federal Reserve yesterday voted to raise its key rate target to a range of between 0.75% to 1%.

The Central Bank responded after strong data on jobs and pay, together with rising inflation and a fall in the unemployment rate to 4.7%.

Policymakers are expected to increase rates three times this year.

Analysts say the Fed may be forced to play catch up with an economy that could be stronger than some believe.

It could also be forced into trying to track and respond to the impact of President Trump’s promises to boost growth through deregulation, tax cuts and more government spending. This could lead to more interest rate hikes

However, the threat of border taxes, trade tariffs and tighter monetary policy could slow growth and inflation.

Markets expected the rate increase and so reaction was muted.  The Dow Jones Industrial Average closed just 0.54% or 109 points higher at 20,950, the S&P 500 firmed 0.84% to 2385.26 and the Nasdaq Composite gained 0.74% to 5900.05.

Japan’s Nikkei 225 barely moved flat and so Australia’s ASX 200 was also flat. Commodity stocks benefited.

The Shanghai Composite was up 0.7% while Hong Kong’s  Hang Seng rose 1.5% after an increase in city rates.

Mining giant Anglo American soared 8% after an Indian billionaire announced plans to take a £2bn stake in the firm.

The dollar fell 0.9% against the euro and more than 1% against the pound. West Texas Intermediate was up 1.5% to $49.57 this morning while Brent crude is 1.5% higher at $52.60.

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