BoE warns of market volatility ahead of FED rate hike

LONDON

The risk of unpredictable capital movements and market volatility has increased, according to the minutes of Bank of England released on Wednesday.

The minutes of the bank’s monetary policy meetings held on Nov. 25 and Nov. 30 showed that members of the committee are concerned over the possible effects of the Federal Reserve interest rate hike, expected on Dec. 16.

The comittee is also worried about the fallout from the European Central Bank's stimulus policy -- the central bank also reduced interest rates in December.

“The divergent monetary policies may cause further volatility and capital flows as that policy divergence progresses.” according to the minutes.

“Though the likelihood of a tightening in policy by U.S. policymakers is widely expected, the market reaction to any decision by the Federal Reserve to increase interest rates remains difficult to predict," according to the minutes.

The bank is also concerned about U.K. banks' exposure to emerging market economies, which may suffer capital flight after the Fed decision.

“Given the size of U.K. banks’ exposures to emerging markets, there are likely to be risks to the country's financial stability associated with the rapid build-up in emerging market debt,” the bank said.