'Super Thursday' sees Bank of England deliver historic interest rate rise

The Bank of England raised the UK's benchmark interest rate by 25 basis points to 0.50% at the conclusion of its latest Monetary Policy Committee (MPC) meeting on Thursday (2 November).

The benchmark rate had been stable at 0.5% from March 2009 to August 2016, when the MPC decided to reduce it by 25 basis points that month, in the wake of dire survey data following the Brexit vote.

However, in delivering a reversal, by a 7-2 majority vote, the UK central bank has raised rates for the first time in a decade, having entered a rate-cutting mode during the global financial crisis of 2008-09.

The only two Monetary Policy Committee members who voted to keep rates steady on Thursday were deputy governors Jon Cunliffe and David Ramsden.

The rate hike was supplemented yet again by a decision to maintain the central bank's asset purchase programme at £435bn, in line with market expectations.

The Treasury-backed Term Funding Scheme – instituted in August 2016 to reinforce the pass-through of the cut in interest rate back then and the purchase of UK corporate bonds – was also maintained. It will continue to run until February 2018.

The minutes of the MPC meeting, released in tandem with the interest rates decision noted all committee members agreed that "any future increases in bank rate would be expected to be at a gradual pace and to a limited extent."

"There remain considerable risks to the outlook, which include the response of households, businesses and financial markets to developments related to the process of EU withdrawal. The MPC will respond to developments as they occur insofar as they affect the behaviour of households and businesses, and the outlook for inflation," the minutes added.

The MPC will monitor closely the incoming evidence on these and other developments, including the impact of rate rise, and "stands ready to respond to changes in the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target."

One and done on "Super Thursday"?

Published in lockstep with the interest rate decision and the minutes of the MPC meeting, the bank's quarterly inflation report noted that consumer price inflation (CPI) will peak at 3.2% this year and the economy will slow down next year amid "considerable risks" related to Britain's exit from the European Union.

BoE Governor Mark Carney said the Bank was "not concerned about where the inflation was now, but about where it was going", adding the rate of inflation was unlikely to return within the Bank's targets without support from monetary policy. He also said that the time was "right" for an interest rate hike.

Timothy Graf, head of macro strategy for EMEA at State Street Global Markets, felt the rate hike and the messaging around it suggests it could be "one and done for the BoE".

"Conscious that potential UK growth is likely lower as a result of Brexit, persistently above-target inflation is their justification for Thursday's move. However, once the effects of sterling depreciation pass out of inflation calculations, the still-weak growth and output profile offer little support for a more prolonged tightening cycle."

Ben Brettell, senior economist at Hargreaves Lansdown, described the move as "largely symbolic" even though it's the first rise in more than a decade.

"The rights and wrongs of the decision will be debated ad infinitum, but it is a 25 basis points increase that merely reverses last year's cut – which was arguably unnecessary – and returns rates to where they've been for the entire post-crisis period. So not much has changed. It's easy to argue the rate hike is just as unnecessary as last August's cut."