Interest rate rises are set to accelerate

● Sterling jumps on forex markets despite 9-0 vote to freeze current rates

Bank of England boss Mark Carney has braced borrowers for further and faster interest rate hikes after stronger-thanexpected growth in the economy.

Policy-makers on the Bank’s Monetary Policy Committee voted unanimously to leave rates unchanged at 0.5 per cent.

The Bank of England (BOE) yesterday warned households and businesses to brace themselves for further and faster interest rate hikes amid stronger-than-expected economic growth.

It came as the Bank’s monetary policy committee (MPC) announced that its members had voted 9-0 to keep base rates on hold at 0.5 per cent after lifting them a quarterpoint in November – the first rise in a decade.

In the minutes of its February meeting, the committee said that monetary policy “would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November report”.

Sterling surged after the report, up 0.8 per cent against the dollar to $1.39 and 1 per cent higher against the euro at €1.14.

City economists said the tone of the statement and the accompanying BOE February quarterly inflation report paved the way for a further monetary tightening as soon as May.

Markets are forecasting three rates rises within three years. Howard Archer, chief economic advisor to the EY Item Club, said the decision by Bank governor Mark Carney and his colleagues to stay their hands on a hike this month “should not mask a more hawkish stance within the MPC”.

Royal Bank of Scotland chief economist Stephen Boyle said he believed financial markets now felt a 0.25 per cent rise in rates in May was “nailed on” given that the world economy was “in fine fettle”.

The BOE raised its growth forecast for the UK economy in 2018 to 1.8 per cent from its previous forecast of 1.6 per cent made in November, as the country gains from stronger global demand.

It added that annual growth is set to ease back to 1.7 per cent in 2019 – in line with its November forecast – and remain at that level in 2020. There was little cheer offered for financially squeezed households as the Boe’s quarterly report showed rising oil prices would keep consumer prices index (CPI) inflation above 3 per cent in the short-term and see it take longer to return to target.

The Bank said that it wanted inflation to return to target within the “more conventional” timeframe of two years, rather than three, but repeated Carney’s assertion on several occasions that rate rises would still be gradual and limited.

Ben Brettell, senior economist, Hargreaves Lansdown, said: “The Bank’s rhetoric echoed that of September’s meeting minutes, which preceded the November rate hike.”

However, he added: “On the subject of Brexit, the Bank sounded a note of caution, saying it remained the key source of uncertainty. Future decisions on interest rates will therefore depend heavily on progress in negotiations with the EU.” The UK economy grew a robust 0.5 per cent at the end of 2017, from 0.4 per cent in Q3.