British pound sinks as BOE members signal unwillingness to raise rates

Alicia Cross
October 18, 2017

The governor would not be drawn on the likelihood of interest rates rising in November, but said the challenge the central bank faces is to strike a balance between putting rates up to ease inflationary pressure in the economy, and keeping monetary policy loose to aide the economy in times of economic strife.

July and August data showed consumer prices rose by 2.6% and 2.9% respectively-the highest since 2012.

The important thing is to focus on actions of bank's jurisdiction, Carney said, "we can contribute to price stability and financial stability".

BOE deputy Governor Dave Ramsden was answering United Kingdom lawmaker's questions in a parliamentary committee, alongside new external BOE policy setting member, Silvana Tenreyro.

"My view is that we are approaching a tipping pint at which it would be necessary or justified to remove some of that stimulus", Tenreyro said Tuesday.

Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said inflation is likely to peak at 3.1% in October and return to target by late 2018, "discouraging" the Bank of England from raising interest rates a couple of times over the next 12 months.

"Today's release has all but rubber-stamped a rate hike from the central bank at their next meeting", said David Cheetham, chief market analyst at online trading firm XTB.

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"Meanwhile, our pay packets have stagnated with wage growth falling behind inflation, despite United Kingdom unemployment being at a record low".

Ramsden said he was not part of that majority, which included BoE Governor Mark Carney.

Bank of England governor Mark Carney told the Treasury Select Committee in Westminster this morning (17 October) that he expects United Kingdom inflation to peak at just more than 3 per cent, in the next two months. She added that a premature rate hike could prove more costly to the economy than an early rate cut.

However, the British pound remained lower against the dollar despite confirmation of Carney's view on inflation.

But the BoE surprised investors last month when it said most of its rate-setters expected to increase borrowing costs in the coming months, partly because Brexit would lead to higher inflation in Britain.

Carney gave no further detail on when this might come, but reiterated that it was on the mind of the monetary policy committee and most members thought a raise "over the coming months may be appropriate". "We expect that inflation will peak in and around the October figure, October-November figures, peaking potentially above the 3% level". Others think it could lose credibility if it again fails to deliver on a rate hike it had hinted about.

Other reports by Free-Prsite

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