Fundamental Comment

Pound rises modestly as BOE will hike rates gradually


The Bank of England voted unanimously to raising interest rates by 25 basis points, moving in line with market anticipations, helping the pound to snap its earlier losses.

Now, the official bank rate is 0.75 percent, which is the highest since March 2009 and the second interest-rate hike since the financial crisis.

The BOE revealed that the economy has recovered from its slowdown during last snowy winter and prices are rising faster.

“A small margin of excess demand emerges by late 2019 and builds thereafter, feeding through into higher growth in domestic costs than has been seen over recent years,” BOE minutes said.

“The contribution of external pressures is projected to ease over the forecast period while the contribution of domestic cost pressures is expected to rise,” the minutes added.

As of 11:15 GMT, the pound traded at $1.3097, compared to the session’s bottom of $1.3067 and the open at $1.3117.

However, the pound failed to have a stronger boost as the BOE said there was no rush to raise interest rates in the coming months.

“Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent,” the central bank said.

The BOE warned that the Brexit could damage the British economy’s recovery through affecting households, businesses and financial markets.

The outlook for the global economy was a bit gloomier, partly owing to the trade war between the US and China which has seen tariffs imposed on a range of goods, the bank said.

BOE outlook

The central bank meanwhile predicts "modest" economic growth of 1.4% this year and an increase to 1.8 percent in 2019.

The unemployment rate is estimated to drop further from 4.2% and wage growth is expected to pick up.

Inflation is forecast to retreat to 2% - the Bank of England's target - by 2020.

Markets are currently predicting one, and perhaps two, rises of 0.25% before 2020.


BOE Governor Mark Caney said that raising interest rates further will be needed, as at 0.75 percent interest rate inflation will be above the BOE’s target over the coming three years.

The UK labor market is “strong”, with signs that earnings growth will accelerate later this year, Carney said.

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