The Bank of England (BoE) kept rates on hold at midday but there was no ambivalence in the message to home owners from BoE governor Mark Carney: prepare for rate hikes, and soon (more below).
“Today’s news,” said Ben Brettell, senior economist at Hargreaves Lansdown, “comes amid investor concerns that faster growth and higher inflation could prompt central banks across the globe to tighten monetary policy more aggressively.” Sterling leapt on Carney’s words, surging right back across the $1.40 barrier leaving the FTSE 100 to struggle though by late afternoon the pound's pace had dropped back to 1.3952 though still +0.55% up.
Carney also upgraded his forecast for the UK economy saying he expected +1.8% growth this year, against +1.6% forecast back in November (though the UK remains the G7’s slowest growing economy, still).
For once Super Thursday was true to its name though Threadneedle Street's moves weren't a complete surprise. The US and the EU economies are booming while Asian growth, particularly China, is on the up. Interest rate hike warnings have lurked for some time. Tonight the FTSE 100 delivered a beaten-down -1.49% close with Evraz and Ashtead Group both down -5% while Sage Group finished -4.5% lower.
Over in the US, Twitter delivered its first quarterly net profit to $91.1m which sent its shares more than +15% higher earlier.
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Bank of England puts borrowers on notice
Watch out, more rate hikes are coming, and they may be fatter than you think. That was the gist of the Bank of England’s message today at midday. The tone was unexpectedly hawkish. For the moment rates are left at 0.50% but May is widely regarded as a rate jump month.
For anyone with a £200,000 mortgage with a 20-year term left a +0.5% rate hike, for example, would see monthly repayments climb to £1,160 from £1,109. That’s more than £50, or £612 over the course of a year.
There was no word from Governor Carney on how many rate rises might be ushered in this year. However he did suggest at least two would be necessary by 2020 in late 2018.
The consumer price index hit 3.1% in November, it also emerged. While this rate is predicted to slip as the pound recovers, inflation will remain above the Bank of England’s +2% target for the duration. Which, in fact, sounds like a return to more normal economic conditions.
TalkTalk shares dive on profits warning and 'divi' cut
Shares in TalkTalk earlier crashed by more than -10% following plans for a new fibre roll-out and a slashing of the dividend. A £200m new rights issue also pushed the Sell button for investors.
A lower profits estimate for this year – from up to £300m predicted in November to between £230-£245m instead – added to the frustration. However TalkTalk’s new numbers issued this morning showed that new customer uptake climbed by 37,000 in the three months to 31 December compared with 26,000 in the previous quarter.
Shares in TalkTalk recovered slightly mid-afternoon, falling -8.69% to 109.60p. Over the last 12 months they have climbed as high as 220.00p.