Time for a quick summary:

The Bank of England has resisted any temptation to raise UK interest rates. Policymakers left borrowing costs unchanged today at just 0.75%.

The BoE also warned that Brexit uncertainty is now hurting the UK economy, lowering growth and hitting share prices. The Bank has also spotted that UK companies are finding it harder to borrow.

But there’s also the possibility of rate hikes in 2019, once Brexit is resolved.

Mike Jakeman, senior economist at PwC, says:

“There is growing evidence that the economy has weakened since summer, with monthly GDP data from the ONS showing flat or only very marginal growth in recent months, while consumer price inflation is slowing and the retail sector is struggling during the vital period in the run-up to Christmas. Add to this the continued lack of clarity around Brexit since its last meeting, and it is clear that interest rates will have to remain on hold for some time.

“That said, the Bank noted the growing tightness of the labour market, which has pushed wage growth higher than the central bank had previously anticipated. There is also the possibility that lower global oil prices could also stoke domestic demand. However, these positive factors do not outweigh those indicating a slowing economy.

“Ultimately though, it will be Brexit that determines the Bank’s next move; a fact acknowledged by the committee, which said its monetary policy response could be in ‘either direction’. On the assumption of a reasonably smooth Brexit, we would expect the Bank to raise interest rates once in 2019, likely later in the year.

The BoE sat on its hands just hours after the US Federal Reserve decided to hike American interest rates, to 2.5%.

That decision, and the Fed’s prediction of two more hikes in 2019, has sparked a wave of selling in the markets. Japan slumped into bear market territory, as shares dropped across Asia.

In Europe, the FTSE 100 crashed to a 27-month low at the open, with European stocks also hitting their lowest points since late 2016. However, investors are now catching their breath, helping shares to recover.

As I type, the Footsie is only down 10 points, having shed 119 earlier. Volatility reigns....

The Bank of England has also published its latest agents’ survey of business conditions across the UK, online here.

It shows that retail sales growth weakened slightly, Brexit uncertainty is restraining investment, export growth has slowed a little, and companies are struggling to hire enough staff.

Economist Rupert Seggins has crunched the key points.

You can catch up with the Bank’s thinking here:

The Institute of Directors says the Bank of England is quite right -- Brexit is having a chilling effect on the economy.

Tej Parikh, Senior Economist at the IoD, says businesses will welcome today’s interest rate decision -- any stability is welcome right now.

“The current political uncertainty is difficult to navigate for both the Bank and firms alike, so the MPC is right to wait for greater clarity before it makes its next move – anything else would be a risky punt on the economy.

The Bank now has a key role in communicating how it would support confidence in markets and the economy in the crucial months ahead in all circumstances, including a no-deal.”

In a worrying sign, Brexit uncertainty is now making it harder, and more expensive, for UK companies to borrow money.

The Bank of England says:

A number of UK corporates had withdrawn planned bond or loan issues in recent weeks. Market contacts had viewed uncertainty around Brexit as having had an adverse impact on the sterling market and the ability of UK companies to issue in other currencies.

Spreads on international banks’ senior unsecured debt had also increased since the Committee’s previous meeting.

Those increases in funding costs had been larger for UK banks than other European and US peers, with contacts attributing the divergence to heightened uncertainty around the outcome of the Brexit process.

All nine members of the Monetary Policy Committee voted to leave UK interest rates on hold, resisting any temptation to copy their counterparts at America’s Federal Reserve.

It’s nearly time for the Bank of England to announce its decision on UK interest rates.

The City expects the BoE to sit on its hands..... with Brexit less than 100 days away, the economy doesn’t also need a rate hike.

Stefan Koopman, market economist at Rabobank, says:

“All roads ultimately lead back to Brexit and until there’s a semblance of certainty, the outlook will remain difficult for the UK. We expect interest rates will remain unchanged, with May offering the best hope of a hike. However, this is largely dependent on Britain leaving the EU with a deal in place.

“Business is reluctant to invest in the current climate. As such we expect the economy to come to a near standstill, with GDP growth expected to drop to 0.2% this quarter and set to stall further to 0.1% in Q1 2019.

“The UK’s labour market is in a very healthy position, with employment at record levels and pay growth at pre-2008 highs. The climate would have been ideal for a rates rise had the ongoing political situation not muddied the waters.”

Pablo Shah, economist at the CEBR think tank, says the Federal Reserve ignored signs of weakness in America’s economy when it hiked borrowing costs last night.

“Cracks are emerging for the US economy, with consumer confidence moderating and recent job market data disappointing.

The stock market turmoil that followed yesterday’s rate hike shows that investors are concerned about a slowdown in 2019 and the Fed’s apparent willingness to continue tightening monetary policy.”

He adds:

With wage growth at a nine year high, historically low unemployment and an economic growth rate still in excess of 3%, the US economy still seems to be in good shape – particularly when compared with other major economies such as China and the Eurozone. However, there is a growing consensus that the edge is coming off the US’ resurgent economy...

But as this chart shows, US unemployment has fallen steadily for years while job vacancies are at a record high, which is why the Fed is worried

In a boost to anyone driving home for Christmas, the oil price has hit its lowest level in over a year.

Brent crude, sourced from the North Sea, is now trading at just $54.91 per barrel, the lowest since October 2017. That’s a 4% slide.

That also indicates anxiety about the world economy in 2019 -- slower growth means less demand for energy, especially as producers are already wrestling with a supply glut.

You’d normally expect a currency to rally after an interest rate hike. However, the US dollar has actually dropped today.

This has sent the pound up almost one cent, to $1.269, and the euro up one cent to $1.147 (which pulls down the share price of multinational European companies).

Why is the dollar weak? I think it reflects worries that that Federal Reserve is tightening policy too aggressively, which will weaken the US economy.

Some City traders would happily hand America’s top central banker a stocking full of coal for alarming the stock markets with last night’s interest rate announcement.

Russ Mould, investment director at stockbrokers AJ Bell, explains:

“Rather than the traditional Santa rally, equities are enduring a Santa rout.

“A rate hike was widely expected when the US Federal Reserve met last night but the extremely negative market reaction reflects what was said alongside the decision by Fed chief Jerome Powell.

“Powell delivered a bit of a double whammy, flagging lots of worrying risks to the economy but still committing to two further rate increases in 2019.

“The scale of the response reflects just how fragile investor confidence is – after all, Powell did effectively reduce guidance from three rate hikes to just a couple next year.

Mould adds that last night’s US interest rate hike really matters to the global economy:

“US rates have such a widespread and profound impact globally thanks to the country’s status as world’s largest economy and because many currencies, particularly in the developing world, are tied to the US dollar. Many emerging markets also hold a lot of their debt in dollars.

“After big declines in Asia overnight, just a handful of stocks on the FTSE 100 were in positive territory this morning with mining firms, energy shares and industrial stocks all enduring significant pain.

“Copper miner Antofagasta was notably down more than 4% and the FTSE 100 hit its lowest point in more than two years. For many in the financial markets, Powell is firmly on the naughty list this Christmas.”

Newsflash: Online shopping has hit a new peak in the UK.

The latest retail sales figures just released, show that online sales made up 21.5% of all retail spending in November. This is the first time that web shopping has exceeded 20%.

The Office for National Statistics also reports that overall retail sales rose by 1.4% month-on-month, a stronger performance than expected.

How does that square with recent warnings of retail gloom -- including a profits warning from online clothing firm Asos on Monday?

Well.... apparently hefty price cuts have driven demand.

The ONS says:

Retailers reported strong growth on the month due to Black Friday promotions in November, which continues the shifting pattern in consumer spending to sales occurring earlier in the year; the non-seasonally adjusted growth rate in November 2018 was 13.2% in comparison with 8.7% in November 2013.

Heads-up: We’re about to discover how well, or badly, Britain’s retailers fared last month....

Not every investor thinks the US Federal Reserve blundered last night.

Ronald Temple of Lazard Asset Management argues that America’s central bank is right to raise borrowing costs last night, given the strength of the US economy.

“I believe the Fed made the right decision for the wrong reasons. With its more dovish outlook, the Fed is too attentive to short-term market moves and not enough to the benefits of running a high-pressure economy.

Tight labor markets are resulting in rising labor productivity and more people returning to the labor force, the two ingredients for faster economic growth.

Meanwhile, inflation at or even above the Fed’s target does have its benefits.”

The sell-off in London is gathering pace.

After 30 minutes of choppy trading, the FTSE 100 has shed 119 points, or 1.6%. That takes it to a new 28-month low of 6646 points.

Every sector is in the red, with miners and consumer companies taking the biggest hit.

Stocks are sliding because America’s central bank seems determined to keep raising interest rates next year, says Mike van Dulken of Accendo Markets:

The driver was not so much the Fed’s decision to hike interest rates [last night], more it’s more downbeat projections for 2019 economic growth and inflation and, perversely, its updated forecast of just 2 hikes next year (previously three).

European stocks are also sliding, taking the Stoxx 600 index down to a two-year low.

The FTSE 250 index, which contains many US-focused companies, has also hit its lowest level in over two years.

Keir Group, the outsourcing company, has plunged by 10% after many investors refused to back a cash call.

There are some big losses in London this morning.

Antofagasta, the Chilean mining company, has tumbled by 4.75%.

Other big losers include retailer Next (-4.5%), and cruise operator Carnival (-4.5%).

Mining giants BHP Group, Rio Tinto, Anglo American and Glencore have all fallen 3%, reflecting concerns that US interest rate hikes could help to choke global growth, and thus demand for commodities.

Fed chair Jerome Powell has turned into a ‘Grinch’, sending anxiety coursing through the markets, says Sue Trinh of Royal Bank of Canada.

The kicker for markets was Fed Chair Powell revealing what keeps him awake at night in his presser.

He spent a lot of time talking about downside economic risks, particularly international economic challenges and financial conditions, without ever mentioning upside risks (e.g., potential for massive tax refunds to fuel consumer spending next year).

Ouch! The wave of disappointment following the US rate hike has driven Japan’s stock market into a bear market (20% off its recent peak).