BOE mildly prods market to expect a 2018 hike, pound not impressed

BOE mildly prods market to expect a 2018 hike, pound not impressed

BOE mildly prods market to expect a 2018 hike, pound not impressed

After UK inflation recently slowed and hawkish BoE policymaker Kristin Forbes stepped down from the Monetary Policy Committee (MPC), most analysts were unsurprised that only two policymakers voted to hike UK interest rates this week.

BoE Governor Mark Carney and his top officials reiterated their message that they might raise borrowing costs by slightly more than investors expect over the next three years, possibly within a year.

The weakness of the pound since the Brexit vote has helped to propel the FTSE 100 to its highest levels, and today's move sent the index to its highest level since 26th July.

Investors will also be paying close attention to any potential shifts in tone from the bank's meeting minutes or inflation report, which are due to be published alongside the bank's policy decision. As slack is absorbed, wage growth is projected to recover.

Meanwhile the Euro struggled to advance ahead of the Bank of England's rate decision this morning as data appeared to suggest that the Eurozone economy is beginning to slow in the third quarter. By 2pm BST, the pound was 0.78% lower against both the dollar and the euro, trading at $1.3118 and €1.1062, as the common currency moved towards its highest level against sterling since November previous year.

She said: "Uncertainties around the Brexit transition and future UK/EU trading relationships make future interest rates movements less easy to anticipate at present, but this should not discourage businesses and households from preparing for a future with higher rates".

The bank voted 6-2 to keep interest rates on hold at 0.25%.

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David Hollingworth from L&C Mortgages said the scheme has helped boost competition in the mortgage market and "underlines that rates won't necessarily remain at the current lows forever".

And yesterday it said the economy will grow by 1.7pc in 2017, up from a forecast of just 1pc made after the referendum. As a result, I think the BoE will lower their GDP forecast for the rest of the year, and probably inflation, which could dampen rate hike expectations for the months to come. "The chances of a 2017 rate hike now look dead and buried", he added.

The pound's positive reaction to better-than-expected data on the United Kingdom service sector was cooled by the regulator's decision to keep interest rates unchanged.

This may imply more interest rate rises - though few economists expect any change this year.

It also comes amid the first strike by Bank of England staff for 50 years, with members of the Unite union protesting over a below-inflation wage rise.

At the time of writing this article, the Pound to Euro exchange rate trended in the region of 1.1188.

Inflation is expected to peak at around 3% by October, before gradually moderating, and falling to 2.2% by 2020.

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