The Federal Reserve decided against raising interest rates at the end of the summer, mainly due to concerns in the international economy. Yesterday's vote was unanimous.
Helal Miah, Investment Research Analyst at The Share Centre, commented:
“An interest rate rise in the US may not be bad news for UK based investors since an appreciating dollar should increase translated earnings for UK based companies. UK exports to the US could receive a boost as it would be cheaper in terms of the dollar.
“An interest rate rise effectively confirms, in the Fed’s eyes at least, that the world’s largest economy is on the right track. The UK resembles the US more closely than any other major economy and therefore this announcement paves the way for the Bank of England to begin its path to interest rate normalisation. However, investors should acknowledge that we are not expecting this until close to mid-2016.”
Jeremy Duncombe, Director Legal & General Mortgage Club, said:
“The US Federal Reserve’s decision to increase interest rates certainly provides a positive outlook on both the US and global economies, and has potential implications for future UK interest rate decisions. The Monetary Policy Committee is likely to take this decision into consideration at their next meeting, which could be seen as an incentive for the UK to follow suit sooner rather than later.
“It is crucial that homeowners act now to secure a low rate while they’re still available. The improving economy has already prompted lenders to increase their fixed-rate products over the past few weeks and today’s news from the US provides further evidence in support of this decision. Many will never have experienced a rate rise and may be unaware of the impact one could have on their finances, making it vital that they now consider the prospect and effects of a future rate rise. Research from Legal & General has shown that by remortgaging sooner rather than later, monthly repayments could be reduced by almost £350.”
Myles Williams, chief executive of Fast Property Finance, said:
"There is every chance that Wednesday's historic US rate rise will bring forward the UK's first interest rate hike, which has clear ramifications for Britain's property market. Coupled with the Fed's decision, the strength of this week's UK employment data also adds to the likelihood of an interest rate rise in 2016. Following the Fed's decision, you would expect even more UK homeowners to remortgage early in 2016 in anticipation of a rate rise later in the year.
"Even though the Bank of England will almost certainly raise rates gradually, the simple fact of entering into an interest rate upcycle will change people's psychology and has the potential to affect demand. Prospective buyers may become more conservative in what they are prepared to borrow, although this is by no means a bad thing.
"The era of rock bottom credit is not over yet but it is certainly drawing to a close. We'll soon see if the safeguards introduced with the Mortgage Market Review will protect people against rising rates in practice."
Nick Dixon, Investment Director at Aegon UK, added:
“Today’s rate hike was expected and confirms a strongly recovering US economy. It is a pre-emptive strike to mitigate emerging inflationary pressure and limit future rate increases. Markets had already priced in gently rising rates over the next few years of which this is the first move. Those expecting a domino effect this side of the pond will be left disappointed, with no-flation likely to delay the Bank of England’s first move until the second half of 2016.”
Peter Cameron, Associate Fund Manager, EdenTree Investment Management, said:
“The twenty-five basis points rise was pretty much unanimously predicted, but there are conflicting messages in the commentary. People are giving a lot of attention to the word ‘gradual’ being included in the statement, but at the same time the Fed has stuck to the same trajectory that it indicated back in September, implying a further four 25 basis point rises in 2016. That is most likely a little more hawkish than the market was expecting. Still, the comment that future hikes will be dictated by incoming data gives them plenty of wriggle room.”
