# Expert View: Bank of England lifts UK rates to 3% in historic hike
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-11-03
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: Bank of England raises UK interest rates to 3% in major hike
Meta Description: Discover the impact of the Bank of England's rate hike on the UK economy, sterling, stock market, and bonds. Stay informed on the market reactions and
URL: https://financedigest.com/expert-view-bank-of-england-lifts-uk-rates-to-3-in-historic-hikehtml

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LONDON (Reuters) – The Bank of England raised UK interest rates to 3% on Thursday in its largest rate hike since 1989 and warned of a “very challenging outlook” for the economy.

Investors had fully priced in the possibility of the three-quarter point increase. Money markets showed traders now expect UK rates to peak at 4.6% by next September, compared to expectations of 4.8% just two days ago.

The pound tumbled after the decision, while London-listed [stocks fell and UK bonds](https://www.financedigest.com/stocks-bonds-extend-rally-on-hopes-rate-hikes-ease.html "Stocks, bonds extend rally on hopes rate hikes ease") came under pressure.

MARKET REACTION

FOREX: Sterling fell as much as 2.0% against the [dollar to a session low](https://www.financedigest.com/euro-rises-after-spanish-cpi-dollar-slips-towards-8-mth-low.html "Euro rises after Spanish CPI, dollar slips towards 8-mth low") of $1.1162. Against the euro, it was down 1.25% at 87.25 pence.

STOCKS: The FTSE 100 was last down 0.6%, having traded 0.7% [lower ahead](https://www.financedigest.com/sterling-edges-lower-ahead-of-key-data.html "Sterling edges lower ahead of key data") of the decision, while the mid-cap FTSE 250 index dropped 1.5%. UK [bank stocks](https://www.financedigest.com/asian-stocks-rally-as-bank-jitters-calm-alibaba-lifts-mood.html "Asian stocks rally as bank jitters calm, Alibaba lifts mood") fell 0.8%

BONDS: [Yields on the two-year gilt](https://www.financedigest.com/euro-zone-bond-yields-fall-as-ecb-policymaker-flags-recession-risk-gilts-eyed.html "Euro zone bond yields fall as ECB policymaker flags recession risk, gilts eyed") were last up 1 basis points at 3.041%, compared with 3.064% before the BoE announced its decision.

COMMENTS

KIT JUCKES, [CHIEF GLOBAL](https://www.financedigest.com/exotix-draws-sberbanks-us-chief-executive-in-triple-hire-to-extend-global-capabilities.html "Exotix Draws Sberbank’s US Chief Executive in Triple Hire to Extend Global Capabilities") FX STRATEGIST, SOCIÉTÉ GÉNÉRALE, LONDON

They [raised rates](https://www.financedigest.com/european-central-bank-to-raise-deposit-rate-to-3-25-by-mid-year-reuters-poll.html "European Central Bank to raise deposit rate to 3.25% by mid-year: Reuters poll") as expected, but the message they are sending certainly isn’t terribly friendly to sterling. At the end, what matters is what people [feel about growth and the idea of a two year long recession](https://www.financedigest.com/consumer-durables-sector-still-feeling-the-effects-of-recession.html "Consumer durables sector still feeling the effects of recession") isn’t going to help the currency.

STUART COLE, [HEAD MACRO ECONOMIST](https://www.financedigest.com/germany-heading-for-recession-despite-new-relief-plan-economists.html "Germany heading for recession despite new relief plan – economists"), EQUITI CAPITAL, LONDON

Going forward, it may not be too long before the monetary policies pursued by the [BoE and Fed](https://www.financedigest.com/fed-rates-up-boe-up-ecb-up-stocks-up.html "Fed rates up, BoE up, ECB up, stocks up") start to diverge. The [market has already reduced its expected peak interest rate; if we get a more austere than expected fiscal statement on 17th November I think we will see that terminal rate](https://www.financedigest.com/instant-view-ecb-sticks-with-big-rate-hike-even-as-bank-fears-roil-markets.html "Instant View: ECB sticks with big rate hike even as bank fears roil markets") lowered some more.

For now, the implication of today’s outcome is likely to be negative for [sterling but supportive for gilts, and we are already seeing sterling react negatively to the implications of the BoE’s](https://www.financedigest.com/sterling-hits-2-1-2-week-high-eyes-on-boe.html "Sterling hits 2 1/2 week high, eyes on BoE") messaging.

ADAM JONES, [WEALTH MANAGER](https://www.financedigest.com/wealth-management-consultant.html "Wealth management consultant"), HOTTINGER, LONDON

We were slightly surprised by the [BoE’s decision to hike](https://www.financedigest.com/uk-economys-unexpected-bounce-spurs-more-boe-rate-hike-talk.html "UK economy’s unexpected bounce spurs more BoE rate hike talk") by 75bps given the recent softening in macro data. [Rates markets are pricing another 50bps hike](https://www.financedigest.com/stocks-falter-as-economic-worries-nag-nz-delivers-big-rate-hike.html "Stocks falter as economic worries nag, NZ delivers big rate hike") at each of the December and February meetings, although still reflect a lower terminal rate than just a week ago. To us, this suggests growing concern about the [outlook for the UK economy.”](https://www.financedigest.com/thomson-reuters-keeps-outlook-but-wary-of-slowing-economy.html "Thomson Reuters keeps outlook, but wary of slowing economy")

RICHARD CARTER, HEAD OF FIXED INTEREST RESEARCH AT QUILTER CHEVIOT, LONDON

Markets had widely anticipated the hefty [rate hike](https://www.financedigest.com/central-banks-keep-hiking-rates-amid-banking-turmoil.html "Central banks keep hiking rates amid banking turmoil"), particularly given the bank has had to make the move prior to the government’s fiscal statement after it was delayed until later this month.

However, this latest move is actually [significantly lower than it could have been given the furore caused by the mini-budget just a matter of weeks](https://www.financedigest.com/significant-savings-stratford-apartment-one-week.html "Significant savings on Stratford apartment for one week only") ago. The change of Prime Minister appears to have restored some calm to UK [bond markets](https://www.financedigest.com/britains-bond-market-turmoil.html "Britain’s bond market turmoil"), and the BoE could take a smaller step as a result.

JEREMY BATSTONE-CARR, EUROPEAN STRATEGIST AT RAYMOND JAMES, FRANCE

After the political and economic upheaval of the last few weeks, the [Bank of England’s](https://www.financedigest.com/bank-of-england-fines-former-tsb-executive-over-2018-it-failure.html "Bank of England fines former TSB executive over 2018 IT failure") move to increase the base interest rate to 3% is an attempt to steady the ship, even if this requires sailing through a recessionary storm in order to get to the calmer waters on the other side.

“There is no doubt we are now looking down the barrel of a recession, which is unfortunately a necessary by-product of the policies required to restore fiscal credibility. The aim is stability in the long-term, as further highlighted by the [bank beginning quantitative tightening, with the bank hoping the economy will rise](https://www.financedigest.com/the-rise-of-biometric-technology-in-banking.html "The rise of biometric technology in banking") out of the recession by this time next year.

JAN VON GERICH, CHIEF ECONOMIST, NORDEA, HELSINKI

What caught my eye is that while some central [banks are saying](https://www.financedigest.com/boes-bailey-says-bank-reforms-worked-but-questions-about-liquidity-buffers.html "BoE’s Bailey says bank reforms worked but questions about liquidity buffers") they don’t know how high rates will go, the BoE is saying the peak is lower than what the market is pricing.

[“Sterling could face some pressure against the dollar](https://www.financedigest.com/sterling-rises-0-5-as-dollar-takes-a-breather.html "Sterling rises 0.5% as dollar takes a breather") at least.

JANE FOLEY, HEAD OF FX STRATEGY, AT RABOBANK, LONDON

The pound has been slipping against the resurgent USD all morning but notably it has fallen against the EUR also following the [BoE announcement and the perception that this was a dovish hike](https://www.financedigest.com/boe-raises-rates-again-as-investors-look-towards-end-of-hikes.html "BoE raises rates again as investors look towards end of hikes").

With two members of the (Monetary Policy Committee) not willing to endorse the 75 bps [rate hike](https://www.financedigest.com/oil-up-2-as-dollar-weakens-on-small-us-fed-rate-hike.html "Oil up 2% as dollar weakens on small US Fed rate hike") this month and given the likelihood that the UK economy will be in recession the next time the BoE meets, the prospects of another 75-bps hike from the bank could appear to be too difficult an ask.

DAVID OWEN, CHIEF ECONOMIST, SALTMARSH ECONOMICS, LONDON

“The move is as expected. We’re still looking over the [next couple of years](https://www.financedigest.com/how-open-banking-will-change-the-banking-industry-in-the-next-10-years.html "How Open Banking will change the banking industry in the next 10 years") for rates to go to over 5%.

“What happens to the pace of quantitative tightening will be important.”

ANDREW ALDRIDGE, [PARTNER AT DEEPBRIDGE CAPITAL](https://www.financedigest.com/sequant-capital-partners-with-hitbtc-to-launch-a-dedicated-service-for-professional-cryptocurrency-traders.html "Sequant Capital partners with HitBTC to launch a dedicated service for professional cryptocurrency traders"), LONDON

Quelling rampant inflation and kickstarting a slowing [economy left the Bank](https://www.financedigest.com/bank-of-canada-seen-on-hold-even-as-economy-accelerates.html "Bank of Canada seen on hold even as economy accelerates") facing a difficult balancing act, with today’s interest rate hike to 3% hardly surprising in this context.

Fiscal and monetary policy remains murky as we move towards year close, and this environment poses significant challenges for investors and [financial advisers in the public markets.”](https://www.financedigest.com/the-feds-rate-hike-that-wasnt-and-brexit-a-snapshot-of-global-financial-markets.html "The Fed’s rate hike that wasn’t and Brexit: a snapshot of global financial markets")

[(Reporting by London Markets](https://www.financedigest.com/sales-forecast-of-canned-motor-pumps-market-analysis-and-forecast-report-till-2030.html "Sales Forecast of Canned Motor Pumps Market , Analysis, and Forecast Report till 2030") Team; Editing by Yoruk Bahceli and Catherine Evans)


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