Economy

SHOCK WARNING: Interest rates could soon RISE, Bank of England deputy says

SHOCK WARNING: Interest rates could soon RISE, Bank of England deputy says

On the Brexit front, Carney said that uncertainty over the UK-EU future relationship is weighing on business investment and household spending, adding that the level of investment in the economy is now expected to be 20% lower than the Bank anticipated before the vote to leave the EU.

But the bank also said that a response to above-target inflation and domestic price pressures will be needed.

"That reflects some degree of uncertainty about how Brexit will unfold", he said on BBC Radio on Friday.

There may be scope for Bank Rate to rise "a little bit", a top official at the Bank of England said.

"GDP growth remains sluggish in the near term as the squeeze on households' real incomes continues to weigh on consumption", The bank said in a statement on Thursday.

But it said the economy would first hit a "trough" this year, with growth of 1.7% before rising to 1.9% next year.

"The MPC said given the other assumptions in its forecast it thought probably there would need to be rate rises, and indeed more rate rises than those priced into the interest rate curve in future than the financial markets expect".

The Bank's Monetary Policy Committee (MPC) voted 6-2 to leave interest rates unchanged at 0.25% and actually increased the total amount of cash it is electronically printing to support bank lending.

In response to the painfully slow rises this year, the Bank cut its forecasts for wage growth in 2018 and 2019 to 3 and 3.25 per cent, down by half a percent for each year.

More news: US Appeals Court Tosses Ex-Blackwater Guard's Conviction In 2007 Baghdad Massacre

Policymakers also voted to withdraw part of the mammoth economy-boosting package unleashed a year ago in the aftermath of Brexit.

The Committee announced that its Term Funding Scheme (TFS, offering cheap, 4-year funding to banks and introduced last August) will end in February 2018, as we expected.

The Bank today attempted to prime markets that monetary policy may need to be tightened by a "somewhat greater extent" than investors are now anticipating.

But the Bank stressed that any hikes would be "gradual" and "limited".

There has been on-going uncertainty over the Government's preferred approach to what kind of transitional arrangements there will be between leaving the European Union in March 2019 and beginning a new trading relationship with the bloc.

John Moclair, head of global customer group at Bank of Ireland capital markets, said the euro/sterling exchange rate began the year at around 85p but has crept higher over the past few months and is now trading above 90p.

"Of course, it could perhaps be that traders are only concerned with the near-term expectations of the BoE given its history of bad forecasts and the sheer amount of uncertainty in the economic outlook due to Brexit". It's interesting to consider that for many current mortgage holders, they have never experienced a rate rise and the impact of any payment shock is unknowable at this time.

But the Bank appeared to suggest that households and businesses should not expect borrowing costs to stay at their record low for much longer.


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