Febrero 19, 2018

BoE holds interest rate at 0.5% and upgrades growth forecast

09 Febrero 2018, 05:40 | Dolorita Barahona

Bank of England to raise rates twice this year, economists say

Will RBI announce a rate hike or hold them steady tomorrow

The Committee also voted unanimously to maintain the stock of United Kingdom government bond purchases, financed by the issuance of central bank reserves, at £435 billion.

The BoE nudged up its economic growth forecasts for Britain to show an average annual expansion of 1.75 percent over the next three years.

"With inflation now at three per cent, well above the MPC's two per cent target, it's inevitable that the Bank of England will consider a further rise in rates to try to curtail the pace of inflation".

But it can influence how this hit to incomes is distributed between job losses and price rises.

However, policymakers seemed more inclined to use such nuances to hone a clear message that rates would rise sooner and further than it said late a year ago. Apart from the inflation concerns, the MPC reiterated that the economy is indeed coming back on track.

Paul Hollingsworth, senior United Kingdom economist at Capital Economics, noted: "Until now, the MPC has been happy to let inflation overshoot the target even after three years". It is therefore appropriate to set monetary policy so that inflation returns sustainably to its target at a more conventional horizon. "Sixth, the confluence of domestic fiscal developments and normalisation of monetary policy by major advanced economies could further adversely impact financing conditions and undermine the confidence of external investors", it added.

Some economists have said that the Bank of England has a narrow window to raise rates because later in the year, London and Brussels could be wrangling over their long-term relationship, weighing on the economy and possibly preventing the bank from moving.

Silvia Dall'Angelo, senior economist at Hermes Investment Management agrees with Mr Kernohan views, saying today's MPC meeting 'laid the groundwork for a rate hike in the very near future'.

So anyone whose fixed-rate home loan is up for renewal before August should be looking right now to lock in the current rates. Following his comments, the chances of a May rate increase climbed to 67% judging by market prices.

"We are not talking about going back to those levels or that historic pace", he said.

The policy meet will be keenly watched, but for now here's a list of factors that may surround the central bank's decision, as per Care Ratings.

However, they said rates would need to rise "earlier" and by a "somewhat greater extent" than they thought at their last review in November.

The decision taken today was slightly on the hawkish side as compared to the expectations, noted Nordea Bank. The bond program was also kept unchanged, in line with expectations. "He has, after all, done it several times before".

Many savings accounts are already loss-leaders for banks and building societies and so they are less likely than mortgage lenders to pass on any rise in interest rates. The MSF rate is the interest charge by the central bank on overnight or urgent loan advances to the commercial banks.

Indeed, it's still incredibly far removed from the mid-noughties, pre-Credit Crunch when rates were hovering around the 5% mark. "The Term Funding Scheme, which has propped up lending to the tune of £100 billion in the last 18 months, comes to an end this February and may well have a knock-on effect on mortgage rates".

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