LONDON (Reuters) -The Bank of England raised interest rates more than expected by half a percentage point on Thursday after it said there had been “significant” news suggesting British inflation would take longer to fall.

The BoE’s Monetary Policy Committee (MPC) voted 7-2 to raise its main interest rate to 5% from 4.5%, its highest since 2008 and its largest rate increase since February, following stickier inflation and wage growth since policymakers last met in May.

In choppy trading, the pound seesawed, as did gilt yields. Traders scrambled to price in a peak to UK rates of as much 6% and its implications for the risk of recession, and rate-sensitive stocks like banks and homebuilders slid.

MARKET REACTION:

FOREX: Sterling was last up 0.1% against the dollar at $1.27830, having bounced off a low of $1.2740.

STOCKS: The FTSE 100 was down 1.2% on the day, compared with a loss of 0.9% prior to the decision.

MONEY MARKETS: UK 2-year gilts dropped sharply, then rose after the decision but were last unchanged at 5.04%. An inversion of the two- to 10-year yield curve, often a sign that investors expect a recession, deepened further.

COMMENTS:

JAMIE NIVEN, SENIOR FUND MANAGER, CANDRIAM, LONDON:

“Ultimately, while a hawkish surprise, it may result in a return of credibility to the bank and result in a recovery of some cross-market underperformance seen recently.”

“If base rates are to remain at these levels (or indeed move to levels priced by the market of around 6%) we fully expect the consumer to be hit hard, with the housing market a particular channel for potential stresses. The reaction of sterling is quite telling in this regard given a small sell-off, at this stage, despite the hawkish surprise.”

JAMES SMITH, DEVELOPED MARKETS ECONOMIST, ING, LONDON:

“Unsurprisingly, the bank hasn’t offered up many – or really any – hints on what might come next, though of course markets think subsequent hikes could take rates above 6% from today’s 5% level.

It was always quite unlikely that the bank would pre-commit to any particular course, or push back against market pricing, given the recent tendency of inflation to overshoot expectations.

But even if the bank hasn’t offered up any new guidance, the rate decision itself is revealing. BoE policymakers are always keen to stress they don’t take decisions on future rate hikes in advance, but they will be acutely aware that the decision to hike by 50 bps today will be read by investors as an implicit endorsement of market pricing for the rest of this year.”

SEEMA SHAH, CHIEF GLOBAL STRATEGIST, PRINCIPAL ASSET MANAGEMENT, LONDON:

“For the bank, there is no space for dithering or confusing messages now. The UK has the unenviable title of highest core inflation rate in the G7, and by quite some margin. It requires the central bank to adopt a clearly hawkish attitude that signals further sizeable moves over the coming months, emphasising the severity of the situation.

A sharper slowdown of the UK economy will be an unfortunate, but necessary, fallout from monetary policy.”

CHRIS BEAUCHAMP, CHIEF MARKET ANALYST, IG GROUP, LONDON:

“The BoE has come down on the side of a 50 bps hike, in a move that seems to set the tone for the next few meetings. The fight against inflation clearly has to step up a gear, and the task now for the BoE is to get ahead of the curve once again. A nod to ‘persistent inflation’ should put everyone on notice that Bailey and co have overcome their reticence about more aggressive hiking.”

PAUL OBERSCHNEIDER, CEO, HILLTOP CREDIT PARTNERS, LONDON:

“The BOE continues to get it very wrong. Raising the cost of money when growth is at virtually zero, and inflation is being caused by factors outside of consumption control, is a recipe for disaster. The focus should be on addressing the underlying causes of today’s inflation, including a lack of housing supply caused by a broken planning system and out of date mortgage products, and fiscal measures that don’t cause more consumer pain. The UK economy is precariously positioned, with real-term UK wages at 2005 levels and the impact of the government’s 400 billion-pound COVID bailout now finally catching up with the Treasury.”

ROBERT JEFFREE, CHIEF EXECUTIVE OF OMNIS INVESTMENTS, LONDON:

“After May’s hot inflation report, the Bank of England faced a dilemma when it came to its interest rate decision today. They can’t risk letting inflation expectations get higher and the worrisome acceleration of prices in the service sector risks just that, even if goods prices are falling.”

“Having said that, their policy is now more data dependent, the bank had to deliver a rate increase. A greater step change – 50 bp rather than 25 bp suggests a more discernible hawkish tilt which is bad news for borrowers and good news for savers.”

GARY SMITH, PARTNER IN FINANCIAL PLANNING, EVELYN PARTNERS, LONDON:

“Expect more mortgage market mayhem after this big bazooka rate hike. Lenders were probably already pricing in a 25 basis point move, but the repricing of home loans looks like it will now be more dramatic and protracted.”

“With the benchmark interest rate undergoing a step-change to a level not seen since September 2008, the coming weeks are likely to see a procession of raised loan rates – and a succession of eye-watering estimates of how much monthly and annual loan payments will increase as borrowers come off their cheap fixed deals.”

(Reporting by EMEA Markets Team; Editing by Yoruk Bahceli)

By John Revill

ZURICH (Reuters) -The Swiss National Bank raised its policy interest rate by 25 basis points on Thursday as the central bank pressed ahead with its campaign to dampen stubborn inflation and signalled that more tightening was likely to come.

Chairman Thomas Jordan pointed to rising inflationary pressures and the danger of price increases becoming entrenched as the SNB hiked Swiss rates for the fifth time in succession.

Although Swiss inflation ebbed to 2.2% in May from 2.6% in April, there was still more work to be done to tackle rising prices, Jordan told reporters.

“The marked decline in recent months is very welcome,” Jordan said. “Nevertheless the underlying inflationary pressure has risen further.

“That means most likely that tighter monetary policy is necessary to bring inflation sustainably below 2%,” he said, “But we can also afford the more gradual approach.”

While inflation globally has been coming down from its multi-decade peaks, central banks around the world are not quite done yet with their monetary tightening campaigns to bring price rises under control.

Although modest by international standards, Swiss inflation has remained above the SNB’s 0-2% target range since February 2022.

On Thursday, the SNB increased its policy rate and the rate it charges on sight deposits to 1.75% from the 1.5% level set in March. The increase, in line with forecasts in a Reuters poll, meant Swiss interest rates were now at their highest level since October 2008.

Still, the Swiss franc fell 0.2% against the dollar after the decision, which disappointed some market players who bet on a bigger 50 basis point move.

The latest SNB hike followed an increase by the European Central Bank, which last week raised euro zone borrowing costs to their highest level in 22 years.

Although the U.S. Federal Reserve left interest rates unchanged last week, it signalled further hikes by the end of the year.

Even with the Thursday’s rate increase, the SNB forecast Swiss inflation would remain above its 0-2% target by 2026.

The central bank also raised its inflation forecasts for 2024 and 2025. The projected above-target inflation can be seen as indicating further tightening in the future.

The SNB said it also remained ready to intervene in currency markets.

In recent months the central bank has been selling foreign currencies to boost the value of the Swiss franc, whose strength has reduced the effect of more expensive imports.

Jordan said that although Switzerland had lower inflation than other countries, it was dangerous to sit back and accept the current level of price increases.

“Inflation would most likely not stabilize but would rather go up again and we would have to fight inflation further down the road with more rate increases,” he said.

Analysts said they expected another hike at the SNB’s next meeting in September, especially following latest rise and Jordan’s comments.

“The message is that the job is not done,” said Gero Jung, an economist at Mirabaud. “In sum, quite a hawkish hike.”

Charlotte de Montpellier at ING said Thursday’s action made her change her outlook.

“Before today’s meeting, I thought that this rate hike was going to be the last of the cycle,” she said. “However, in view of the inflation forecasts and the message, I am going to revise my forecast and anticipate a further rate hike in September.”

(Reporting by John Revill, Additional reporting by Noele IllienEditing by Maria Sheahan and Tomasz Janowski)

PARIS (Reuters) – Following are highlights of what world leaders said at a summit in Paris on Thursday to boost crisis financing for poor countries, reform post-war financial systems and free up funds to tackle climate change.

ON REFORM

“Even with the capital that the World Bank and the MDBs (multinational development banks) have, there is clearly potential …to increase financing capacity,” said U.S. Treasury Secretary Janet Yellen, whose country is the World Bank’s biggest shareholder.

Yellen said an additional 200 billion dollars could be unlocked over a decade.

“We are certainly not ruling out at some later stage a capital increase. But I think that these banks need to function better individually and as a system first, expand their mission to address global challenges, better utilize the capital they have.”

ON NATURAL DISASTER CLAUSES

“We would also like to see the World Bank offer borrowers the option to add climate resilient debt clauses to their loan agreements. These clauses would help ease pressures on countries if a natural disaster strikes,” Yellen said.

ON UNLOCKING PRIVATE SECTOR FINANCING

“We need to mobilise the private sector a lot more, there is a lot of liquidity, a lot of money in that world,” said French President Emmanuel Macron.

ON FAILURE OF INTERNATIONAL FINANCIAL ARCHITECTURE

“It is clear that the international financial architecture has failed in its mission to provide a global safety net for developing countries,” said U.N. Secretary General Antonio Guterres.

(Reporting by Leigh Thomas, John Irish, Elizabeth Pineau, Silvia Aloisi; Editing by Christina Fincher)