Rate rise speech

Iran Daily - - Tse & Global Economy -

The pound has hit its high­est level against the dol­lar since the Brexit vote af­ter a se­nior Bank of Eng­land (BOE) of­fi­cial fu­eled spec­u­la­tion it could raise rates in the com­ing months. BOE pol­i­cy­maker Gert­jan Vlieghe, who has pre­vi­ously ar­gued against a rate rise, said the ‘mo­ment is ap­proach­ing’ when in­ter­est rates might need to go up, BBC re­ported.

The bank kept rates at 0.25 per­cent this week, but hinted at a rise in the fu­ture.

Ster­ling rose more than one per­cent against the dol­lar to hit $1.3610.

That was its high­est level since June 24, the day af­ter the Brexit vote.

The pound also gained more than 1.1 per­cent against the euro to rise to €1.137 by Fri­day night.

An­a­lysts have sug­gested the bank could now lift in­ter­est rates back to 0.5 per­cent, the level they were be­fore the EU ref­er­en­dum, as soon as Novem­ber.

Vlieghe, a mem­ber of the bank’s in­ter­est rate-set­ting com­mit­tee, said in a speech on Fri­day: “Un­til re­cently, I thought the ap­pro­pri­ate re­sponse of mon­e­tary pol­icy was to be pa­tient, given mod­est growth and sub­dued un­der­ly­ing in­fla­tion­ary pres­sure.

“But the evo­lu­tion of the data is in­creas­ingly sug­gest­ing that we are ap­proach­ing the mo­ment when bank rate may need to rise.”

Vlieghe, who was the first bank mem­ber to vote for a rate cut af­ter the Brexit vote, said there was now grow­ing ev­i­dence the UK econ­omy was pick­ing up.

‘Con­certed ef­fort’

He pointed to un­em­ploy­ment fall­ing to record lows, as well as signs that house­holds are spend­ing more and that wages are ris­ing in the pri­vate sec­tor.

“If these data trends of re­duc­ing slack, ris­ing pay pres­sure, strength­en­ing house­hold spend­ing and ro­bust global growth con­tinue, the ap­pro­pri­ate time for a rise in bank rate might be as early as in the com­ing months,” Vlieghe said.

Mar­kets which track in­vestors’ ex­pec­ta­tions for the bank rate now give a 63-per­cent like­li­hood of a rise in Novem­ber, the high­est since the Brexit vote. At the start of the week the fu­tures mar­kets gave only a 20-per­cent chance.

The re­turn on gov­ern­ment bonds, of­ten in­flu­enced by in­ter­est rate ex­pec­ta­tions, also hit 15-month highs on Fri­day.

The yield on five-year UK bonds rose seven ba­sis points to hit 0.772 per­cent, the high­est since June 23, 2016, the day Bri­tain voted to leave the Euro­pean Union.

Howard Archer, chief eco­nomic ad­viser to the EY Item Club, said: “Vlieghe’s com­ments will sup­port be­lief that the Bank of Eng­land could well raise in­ter­est rates be­fore the end of 2017 with a move as soon as Novem­ber very much in play.”

Archer cau­tioned that the Bank of Eng­land had “talked up the like­li­hood of an in­ter­est rate hike then failed to fol­low through” in the past.

“But there does seem to be a more con­certed ef­fort this time around and more una­nim­ity within the Mon­e­tary Pol­icy Com­mit­tee of the case for a hike,” he said.

The bank said that higher in­fla­tion and a pickup in growth could lead to a rate rise soon.

Grow­ing spec­u­la­tion of a rate rise lifts the pound against other cur­ren­cies be­cause higher in­ter­est rates would make ster­ling more at­trac­tive to in­vestors.

The bank dropped heavy hints in 2014, and again last year be­fore the EU ref­er­en­dum, that it could raise rates, only to later change course.


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