BoE hints at 'earlier' rate hikes as MPC adopts more hawkish stance


The MPC forecasted CPI, which is now at 3%, to remain above its target despite predicting a fall back over the coming months.

Sterling climbed against the dollar and euro on Friday, extending the previous day's gains, after the Bank of England said interest rates would probably need to rise sooner and by more than it had previously thought.

Interest rates were cut to exceptionally low levels following the financial crisis to support spending and reduce unemployment.

Abi Oladimeji, chief investment offficer at Thomas Miller Investment, says global growth is likely to moderate and inflation will ease.

ING economist James Smith said the bank "caught markets off-guard with its surprisingly bullish outlook for the economy and interest rates". "The hawkish tilt of this meeting will at the very least vindicate these moves and possibly encourage further expectations", said Michael Metcalfe, global head of macro strategy at State Street Global Markets. One Buy To Let mortgage lender shared with us recently that whereas the historic split had been closer to 50/50, it's business mix at the moment is over 85 per cent remortgage: this is just one barometer of how consumers are feeling about the likelihood of rates rising - they dive into a better rate and often a fixed rate deal.

Sterling rose to a 16-month high of $1.4346 in January.

"Doubling interest rates from one half [of a per cent] is not a terribly big rise", he said.

Markets are now predicting central banks globally will tighten policy faster than previously expected with inflation expectations growing.

At a press briefing Thursday, after the bank held its main rate at 0.5 percent but signaled another hike could come this year, Carney said increases will be gradual.

This week's recent market turmoil, which continued on Wall Street last night, has been prompted in part by fears that central banks will raise interest rates faster than expected in response to higher inflation, but Broadbent said he was not concerned by the falls in stock markets. That was up from the 1.6 percent given in November.

The bank said Thursday that its rate-setting committee had unanimously voted to keep the key rate at 0.5 percent, three months after raising it for the first time in a decade to get inflation down.

The BoE forecast Britain's annual inflation rate to hit 2.4 percent this year before slowing to 2.2 percent next year.

The Brexit talks are set to officially recommence soon, but there's a lack of clarity over what Britain's future relationship with the European Union will be after the exit in March 2019.



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