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Relax? Why you shouldn't worry about a rate rise

"Rate rage" or a "hike huff"? There are a few phrases to describe the wobbles that investors could experience while global central banks look to normalize their monetary policy.

But it doesn't have to be that way, according to a former policy member at the Bank of England (BoE).

Andrew Sentance, now a senior economic adviser at PWC, told CNBC Wednesday that "intrinsically" there's no reason why markets should react negatively to a rise in interest rates.


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"I think if central banks are doing their job properly a rise in interest rates shouldn't be seen as a bad thing," he said.

"It should be seen as a reflection of the fact that the economy is recovering in the U.K. or in the U.S."

Global stock markets would only get "spooked" if investors find that central banks have gotten "behind the curve," according to Sentance. Thus, he implied that "risk-off" sentiment could return if it becomes clear that policymakers are out of touch and forced to grapple with runaway inflation or asset bubbles.

"That will worry (markets) and I think that's a reason for actually moving sooner rather than later," Sentance added.

"A rise in interest rates is a signal that the economy is strengthening and profits have been improving over that period, companies have been getting their act together, getting back into better health."

Stocks finished lower Tuesday after comments from Federal Open Market Committee voting member and Atlanta Fed President Dennis Lockhart. His surprisingly hawkish words upped expectations of a September interest rate rise and investors are closely watching the U.S jobs data which is due out this Friday.

Meanwhile, the Bank of England is due for a rate decision Thursday and will also reveal the minutes of its last policy meeting. Pundits in the U.K. are expecting some dissenting voices at the BoE, with the possibility that some could be calling for the bank to raise rates of record lows.

These benchmark bank rates are used to price all sorts of mortgages and loans and a rise is seen as likely to have an impact on the availability of credit in a country's real economy.

Stock markets have previously reacted badly on the prospect of a rise with the belief that expensive credit could cause an end to a six-year bull run in equities. David Rubenstein, the co-founder and co-CEO of The Carlyle Group, told CNBC Tuesday that stock markets could "ease a bit" over the next six to nine months with the Fed edging its rate higher.

There are those that are still a little concerned by the possibility that the Bank of England could be readying a move. Carl Weinberg, chief economist at High Frequency Economics, said in a note Wednesday that a series of figures in the U.K. were still showing weakness in its economy.

"Hiking interest rates now would be daft," he said, highlighting the U.K.'s large current account deficit.