FTSE hits 7400 as Bank keeps rates at 0.25pc

SHARES in london hit record highs last night and sterling rebounded after a Bank of England official voted to increase interest rates for the first time in more than a year.

The FTSE 100 index rose above 7400 for the first time – closing up 47.31 points at 7415.95 – taking its gains since its lows after the Brexit vote to 24pc.

The rally since last June has added £ 360bn to Britain’s blue-chips, boosting the value of investments for millions of savers and pensioners.

Sterling was also on the march, rising as high as $1.2374 and € 1.1532, after Kristin Forbes became the first member of the Bank’s monetary policy committee to vote for a rate hike since January 2016.

The American economist argued for an increase in rates to 0.5pc – but was outgunned by the other eight members of the MPC who voted for rates to remain at 0.25pc. The Bank’s decision to hold borrowing costs came just hours after the US Federal Reserve raised rates for the third time since the financial crisis.

In a sign of growing confidence in the US economy, the Fed raised rates by 0.25 percentage points to between 0.75pc and 1pc on Wednesday, and signalled they could reach 2pc by the end of next year and 3pc in 2019.

In the UK, the Bank said it now expects the economy to grow by 0.6pc in the first quarter of this year, having forecast growth of 0.5pc a month ago.

‘Although it was too early to make a confident prediction of growth in the second quarter, there had been relatively little evidence so far of a slowdown,’ the minutes of the Bank’s meeting said.

Despite the Bank’s forecasts suggesting inflation will rise above the 2pc target this year to around 2.75pc next year, investors do not believe rates will rise until summer 2019.

But Ruth Gregory, UK economist at Capital Economics, said this month’s more ‘hawkish’ tone suggested rates could rise sooner than that.

‘The decision to leave interest rates on hold, at the same time as the Fed tightened policy again, highlights the likely divergence in rates that is set to occur over the next few years,’ she said.

‘But the unexpectedly hawkish minutes supported our view that UK rates may rise sooner than markets expect.’