How BoE Interest Rate Increase affects stocks
The BoE(Bank of England) uses interest rates(aka. Base Rates) to attempt to impact the amount of money in circulation and therefore control inflation.
The Interest Rate/Bank Rate is the rate of interest we pay on reserves held by commercial banks at the Bank of England. For this reason, banks normally pass any changes in Bank Rate onto their customers.
The increase of this rates does not have an immediate impact in the stock market but the only truly direct effect is that borrowing money from the BoE is more expensive for banks.
Because it costs them more to borrow money, financial institutions often increase the rates they charge their customers to borrow money. Individuals are affected through increases to credit card and mortgage interest rates, especially if these loans carry a variable interest rate. This has the effect of decreasing the amount of money consumers can spend. After all, people still have to pay the bills, and when those bills become more expensive, households are left with less disposable income. This means people will spend less discretionary money, which will affect businesses' revenues and profits.
But businesses are affected in a more direct way as well because they also borrow money from banks to run and expand their operations. When the banks make borrowing more expensive, companies might not borrow as much and will pay higher rates of interest on their loans. Less business spending can slow the growth of a company; it might curtail expansion plans or new ventures, or even induce cutbacks. There might be a decrease in earnings as well, which, for a public company, usually means the stock price takes a hit.
Very high interest rates could indirectly push the price of stocks down.
But wise value investors should always remember than when interest rates raise the Bonds fall. I will write more about this in future posts :)
Sources:
https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate
https://www.investopedia.com/investing/how-interest-rates-affect-stock-market/