Rate rise could happen before end of 2019
Bank of England governor Mark Carney has cautioned that interest rate hikes are still on the cards after the central bank revised up its growth outlook for the UK economy.
As widely expected, the monetary policy committee yesterday voted to hold rates at 0.75 per cent, but Carney stressed that financial market expectations that a hike will not come until the end of 2021 would not be enough to keep inflation to the bank’s 2 per cent target.
He said a Brexit resolution with a smooth transition would require “more frequent” rate increases, although he stressed these would be limited and gradual.
The bank upped its growth forecast to 1.5 per cent this year, from the 1.2 per cent predicted in February. It also increased its gross domestic product(gdp)growthoutlook to 1.6 per cent for 2020 and 2.1 per cent in 2021, from 1.5 per cent and 1.9 per cent previously.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Markets are now pricing in a one in three chance of a UK rate rise by the end of this year. That looks a little rich from where we’re sitting, but markets find it difficult to price something as uncertain and manifold as the possible Brexit outcomes. Precise predictions should probably therefore be taken with a pinch of salt at the moment.
“Looking at the broader picture, UK interest rates look set to remain low for the foreseeable future.
“Workers can expect to feel some gains with wages picking up and inflation falling away, thanks in large part to lower home energy costs.”