Bank of England members talk up faster pace of rate hikes

  • All posts
    All posts|Currency Updates
    All posts|Currency Updates|International Trade
    All posts|In The News
    All posts|International Trade
    Charities & NGOs
    Currency Updates
    Currency Updates|In The News
    Fraud
    In The News
    In The News|Press
    International Trade
    Press
  • Latest

22 February 2018

thomasdodds

Policymakers at the Bank of England talked up the possibility of a faster-than-expected pace of interest rate hikes in the UK yesterday, reinforcing expectations that the central bank could be ready to raise borrowing costs again in May.

S
peaking during the latest Inflation Report hearings on Wednesday afternoon, a handful of BoE members, including Governor Mark Carney, struck a relatively hawkish tone. Chief Economist Andy Haldane said that he judged the risks to the MPC’s latest demand and inflation forecasts as ‘lying to the upside’. He also hinted that rates could be raised at an accelerated rate to return inflation back to target and that the UK economy would only need to match last year’s relatively soft economic growth rate in order to justify higher rates.

Fellow MPC member Silvana Tenreyro was equally upbeat, saying that a tightening of policy was likely to be stronger than anticipated in November. Carney himself strayed away from any direct comment on rates, reiterating Brexit remains the biggest risk to the UK economic outlook and that monetary policy is ‘nimble to react to changes in economic expectations linked to Brexit’.

The overall upbeat and hawkish tone of communications provided modest assistance for Sterling, although the currency gave back all of its gains following the Fed minutes. It also reinforces our expectations for another rate hike from the BoE at its May meeting (currently around 60% pricing in by the market), and we think policymakers will hint as much at the next meeting in late-March.

US Dollar roars back after hawkish FOMC minutes

Last night’s meeting minutes from the Federal Reserve were equally as hawkish, sending the US Dollar around half a percent higher across the board during a fairly volatile New York trading session.

The minutes suggested that the central bank in the US also remains primed to raise interest rates at an accelerated pace this year. Communications from its last meeting in January struck an upbeat tone over the economy, saying that there was an ‘increased likelihood that a gradual upward trajectory of the federal funds rate would be appropriate’. With only a couple of officials worried the economy would overheat, we continue to think that as many as four hikes from the Fed in 2018 remains a strong possibility.

The major announcements continue to come thick and fast this week, with the European Central Bank set to release its latest meeting accounts just after midday UK time. The Euro spent much of yesterday stuck in a range, with investors mostly overlooking a disappointing set of business activity PMIs out of the Eurozone. Activity slowed in both the services and manufacturing sectors this month according to the preliminary figures, with the composite index falling to a three month low 57.5 from January’s 58.8.