Monday, 21 January, 2019

Bank of England signals steeper interest rate rises to reign in inflation

Nellie Chapman | 09 February, 2018, 07:26

The Bank of England have announced earlier today that they may be gearing up to increase interest rates in the United Kingdom if the economy continues to show signs of positive growth combined with increased inflation levels. Governor Mark Carney and colleagues saw a growing need to move faster on raising rates to keep a grip on inflation in the world's sixth-biggest economy.

'It now looks like the next rise could happen as soon as May - the next time the Bank's economic forecasts are due to be updated.

November´s rate rise was the first in a decade against the backdrop of accelerating United Kingdom inflation.

Figures released last Friday showed strong U.S. payrolls and rising wage inflation. Last year, the BoE had raised the cost of borrowing for the first time in more than 10 years.

Meanwhile, with $1.5tn of tax cuts to work there way through the system and USA monthly data now pointing to accelerating momentum this quarter, the Federal Reserve appears increasingly likely to raise United States interest rates in March.

Bank of England rate setters voted unanimously to hold the UK's cash rate at 0.50% for the month of February but warned in their accompanying statement that a faster pace of rate hikes will be necessary to return inflation to the 2% target over the two-to-three year forecast horizon.

"The expansion is becoming increasingly broad-based and investment driven".

United Kingdom 10-year gilt yields jumped by 3.3% on Thursday to stand at around the 1.6% mark.

Not only that, Brexit news will also play a part in all of this as well according to Carney so there's a chance that expectations are going to jump all over the place if we start seeing things get a little messy.