BoE Maintains Status Quo But Signals Early UK Rate Hike

EUR  USD price chart

EUR USD price chart

At the rate setting meeting, the Monetary Policy Committee voted unanimously to maintain the benchmark rate at 0.50 percent.

This inflation view, combined with the bank's upgraded forecasts for UK GDP growth, means an interest rate rise in 2018 is no longer a question of if and now a question of when.

Carney has said on numerous occasions that it would be beneficial for the United Kingdom economy if a transition deal is agreed on by the end of the first quarter to provide clarity for businesses.

The Bank of England made a decision to stand pat on rates on "Super Thursday" as widely expected, but hinted at somewhat earlier- and deeper-than-expected rate hikes.

If one isn't agreed on around that time, he said the bank will assess the impact on economic confidence and business activity.

GBP  USD price chart
GBP USD price chart

"It caught markets off-guard with its surprisingly bullish outlook for the economy and interest rates", said James Smith, developed markets economist at ING.

Against the dollar, the pound rose as much as 0.9% to hit a day's high of $1.4015 after trading flat before the Bank of England announcement, in which the bank kept rates unchanged. While some lawmakers in Prime Minister Theresa May's party want close ties with the remaining 27 European Union nations and a period of transition, others want a more fundamental break that would see Britain diverge more profoundly on matters related to regulations and trade.

At the same time, the fall in consumer price inflation was projected to be more gradual in the near term than expected at the time of the November Report. The economist expects the MPC to hike rates two times this year, taking Bank Rate to 1.25%.

Carney said it's "healthier" when markets have "two-way risks" even when trending up or down. "But it is still likely that they will rise later this year, with at least one quarter point rise - and possibly more - during 2018". "And given the Bank's suggestion that rates will need to rise by a "greater extent", a second hike in November certainly can't be ruled out".

Given that, he said the return of volatility was "not an entirely surprising development". Well, because the market thinks BoE might raise interest rate in May to contain inflation.

Recommended News

We are pleased to provide this opportunity to share information, experiences and observations about what's in the news.
Some of the comments may be reprinted elsewhere in the site or in the newspaper.
Thank you for taking the time to offer your thoughts.