Fundamental Comment

BOE: Rates could rise sooner than expected

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The Bank of England opted to hold interest rates on Thursday, after a unanimous vote from the nine-member Monetary Policy Committee, yet warned that rates could rise sooner than expected.

MPC members decided to keep interest rates at 0.50 percent and amount of asset purchases at 435 billion pounds.

However, the BOE warned that rates could rise sooner than predicted.

“Were the economy to evolve broadly in line with the February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report,” the BOE said.

The BoE also raised its growth outlook to 1.8 percent this year, up from a previous estimate of 1.6 percent. It also lifted 2019 forecasts to 1.8 percent versus 1.7 percent, while held 2020 anticipations at 1.7 percent expansion, according to the quarterly inflation report.

As of 12:08 GMT, the pound surged against the U.S. dollar to 1.3992, compared to the sessions’ open at 1.3879.

Mark Carney

At the press conference following the rate decision, BOE Governor Mark Carney revealed that there is very little spare capacity in the U.K. economy. That’s why the BOE thought that monetary policy will be tightened “somewhat earlier and by a somewhat greater extent” than it expected three months ago.

Carney said he was confident that there would be a growth in both wages and unit labour costs.

British exporters are taking advantage of the lower currency, but businesses are being held back by Brexit uncertainty.

Despite the ‘twists and turns’ of Brexit, the BOE will continue to adjust its monetary stance to balance inflation and bolster jobs and growth.

Carney stressed that interest rate hike could be somewhat sooner, but still the process would be gradual and to a limited extent.

Inflation could accelerate more than 3 percent over the coming few months, but that would be temporary, give the higher import prices caused by the weak pound.

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