Pound hits high as Bank says rates could rise soon

Andrew Cummings
September 15, 2017

The Bank of England said it was likely to raise interest rates in coming months if the economy and price pressures kept growing, flagging Britain´s first rate hike in a decade.

GBP/USD traded above 1.32600 on the release of higher than expected United Kingdom inflation data, putting pressure on the United Kingdom central bank to temper price rises.

"But for now, it seems the net effect of the many underlying forces acting on the United Kingdom economy is that slack is continually being eroded and wage pressure is gently building".

The minutes to the central bank's decision showed that the majority of the panel is ready to raise interest rates "over the coming months in order to return inflation sustainably to target".

Bank of England policymakers have been faced with a dilemma during their deliberations over whether to increase interest rates, the outcome of which is due later Thursday.

"Prices are rising above target, which creates the case for raising rates, but today's wage data suggests all is still not right in the economy".

The Turkish Central Bank left its key interest rates on hold for the third straight meeting on September 14, keeping monetary policy tight after annual inflation rose back to double digits last month.

"This supports our long-held view that market expectations had gone way too far in expecting rates to remain on hold until 2019", he said.

The weak economy is now winning out, but the bank's words on Thursday are the clearest indication yet that it may raise rates in the coming months to help keep inflation down, and that markets are underpricing the chance for a hike in the near future.

Sterling surged by nearly 1% today to its highest level in a year against the dollar after United Kingdom inflation rose to its equal highest in more than five years. Yet, it stressed that any rate hike "would be expected to be at a gradual pace and to a limited extent".

"The decision will continue to be data-dependent".

The BoE has raised the prospect of rate rises in recent years but not followed through.

Growth has been muted at 0.3% in the second quarter, although the Bank said consumer demand was set to be stronger in the current quarter, while the Brexit-hit pound would boost exports.

Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said the MPC had "ratcheted up" its rhetoric surrounding a rate rise.

Policymakers said there remain considerable risks to the outlook, which include the response of households, businesses and financial markets to developments related to the process of European Union withdrawal.

"To me, leaving rates where they are makes a great deal of sense", he said.

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