Shock rate rise hits UK stocks and bonds

"Mugged by an Old Lady. How embarrassing," says Jamie Chisholm in the FT. UK equities and bonds took a beating last week after the Bank of England (BoE) otherwise known as the Old Lady of Threadneedle Street unexpectedly hiked interest rates by a quarter of a point.

The rise shouldn't have shocked the stockmarket as much as it did, says William Kay in The Sunday Times.Plenty of commentators had already said that it was a 50/50 bet on whether the BoE would be spurred into action. However, "investors have become used to central banks delicately managing expectations", says Chisholm. The European Central Bank's (ECB) decision on the same day was well-trailed yet the ECB has always been regarded as bad at communication, while the BoE is viewed as the most sophisticated of central banks in this respect, says the FT's Lex column.

The result of this surprise is that "its anti-inflation credentials have certainly been enhanced, but its reputation for intellectual consistency has not".

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Gripes over the surprise aside, the real fear is that rates will rise substantially higher. It could be that the BoE will make only one more increase in the cost of borrowing, says The Times. But any consumers who would be badly hurt if rates climbed above 5% should expect the worst and reorganise their finances accordingly. And if people heed this sage advice, it does not bode well for shares, says Kay especially those in the retail sector and other businesses reliant on consumer spending.

by Graham Buck