The FTSE 100 fell 1% today while the pound slightly recovered against the dollar after the Bank of England unanimously decided to raise interest rates from 0.5% to 0.75%.
“With domestically-generated inflation building and the prospect of excess demand in the economy emerging, a modest tightening of monetary policy is now appropriate to return inflation to its 2 percent target, and to keep it there,” Mark Carney, governor of the Bank of England, said.
This is only the second time interest rates have been raised in a decade following the banking collapse of 2008.
Some, however, have criticized the decision in light of Brexit and a weakening economic growth in Britain.
The UK economy grew at just 0.2% during the first quarter. That means in real term it has gone down when one accounts for inflation at more than 2%. In contrast, USA grew by some 4%.
“Growth has remained subdued, and the recent partial rebound is the least that could be expected after the lack of progress in the year’s first quarter,” said the Institute of Directors.
Trump criticized the FED recently for penalizing the United States after suggestions they are to raise interest rates.
In UK, politicians have not said much, but this appears to be a global co-ordination of sorts by Central Bankers who often meet in closed doors gatherings through forums like the Bank for International Settlement and others.
Central Banks have oversight over commercial banks which create money through debt, with an increase in interest rates potentially lowering demand for borrowing.
Such increase, however, also makes debt burdens heavier as 3.5 million residential mortgages are on a variable interest rates in UK.
They will now probably see higher repayment costs as the current average mortgage interest rate of 4.72% will probably go up, potentially increasing risks of default.
On the other hand, base interest rates are at historic lows, but central banks tend to raise them too high until debt costs become unbearable, leading to mass defaults and a crash.
Whether this macro trend of higher interest rates affect cryptos is unclear, but in theory higher interest rates should lower or slow down growth in new money supply, thus may make fiat a bit stronger.
Cryptos thus are a bit down today, but they have been seeing their own trend since December with a bear market still continuing.