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Bank of England paves way for first rate hike in a decade

Agencies | Updated: 2017-09-14 22:45

Bank of England paves way for first rate hike in a decade

A man speaks on his phone outside the Bank of England in the City of London, Britain, August 23, 2017. [Photo/Agencies]

LONDON - 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.

Policymakers voted 7-2 on Thursday to keep rates on hold for now at a record-low 0.25 percent, as expected.

But in a week when data showed UK prices rising faster and unemployment falling to a four-decade low, they said their tolerance for above-target inflation was lessening.

The Brexit vote has put the BoE in a dilemma as it sought to balance the need to support the economy through the shock of leaving the European Union in March 2019 while also keeping a grip on fast-rising inflation.

It said that, if the trend towards shrinking spare capacity and rising underlying inflation continued, "some withdrawal of monetary stimulus was likely to be appropriate over the coming months."

Sterling leapt by a cent against the dollar after the statement and 10-year gilt yields increased by 4 basis points to 1.18 percent, their highest level since the BoE’s last meeting on Aug. 3.

"I would describe (a rate hike in) November as being live," Nomura economist George Buckley said.

But weaker than expected inflation or disappointing growth in jobs or wages could still throw the BoE off course, he added.

 

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