Why BoE sees need for earlier rate hikes
london — The Bank of England lifted its forecasts for economic growth and suggested it may need to raise interest rates faster than previously indicated.
The Monetary Policy Committee, led by Governor Mark Carney, sees the UK growing quicker than its sustainable pace through 2020, meaning there’s a greater risk of overheating. Inflation is projected to remain above the two per cent target under the current yield curve, which prices in about three quarter-point hikes over the next three years.
The MPC agreed that “monetary policy would need to be tightened somewhat earlier and by a somewhat greater degree over the forecast period than anticipated at the time of the November report,” according to the minutes of its latest meeting published on Thursday. The pound jumped after the announcement and was up 0.8 per cent to $1.3995 as of 12:03 p.m. London time.
The comments may fan market expectations of a rate hike as soon as May. Bets on such a move increased in the run up to the February decision and a number of economists also now see an increase in the first half of the year.
The new outlook from the BoE came as it left the benchmark interest rate unchanged at 0.5 per cent. The vote was unanimous, though there was speculation that one or two of the nine policy makers would vote for a hike.
In its updated forecasts, the BOE sees growth at 1.8 percent this year and next, up from its November projections. While consumption will remain weak and Brexit is damping investment, global demand is helping UK trade, it said.
Policy makers also reiterated that a range of Brexit outcomes are still possible.