Bank of England signals early 2016 hike after sterling climb

Thu Aug 6, 2015 5:51pm EDT
 
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By William Schomberg and David Milliken

LONDON (Reuters) - The Bank of England pointed to a possible rise in interest rates early next year as just one of its top policymakers backed an immediate move and it said the strength of sterling meant inflation would only pick up slowly.

The pound fell sharply and investors briefly pushed back their bets on a first rate hike until June next year, before BoE Governor Mark Carney said the Bank was getting closer to beginning to undo its stimulus for Britain's economy.

"The likely timing of the first Bank Rate increase is drawing closer," he told reporters.

"However the exact timing of the first move cannot be predicted in advance ... in short, it will be data-dependent," he said after the BoE for the first time published its quarterly economic forecasts and details of its latest policy discussions on the same day.

The BoE slashed interest rates to 0.5 percent in the depths of the financial crisis in 2009 and has kept them there since.

With the economy now recovering strongly and wages finally rising more quickly, speculation is growing about when it might start to wean Britain off low rates, mirroring the debate at the U.S. Federal Reserve.

Carney warned investors that they might be too relaxed about the path, or 'curve', that they are predicting for rates.

He pointed out that the Bank was forecasting that inflation would start to overshoot its 2 percent target in just over two years' time, based on predictions in the market for a first BoE rate hike in the second quarter of next year.   Continued...

 
A bus passes the Bank of England in London, Britain May 13, 2015. REUTERS/Stefan Wermuth