United Kingdom 2018 Economic Outlook Improves as BOE Poised to Raise Rates

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United Kingdom 2018 Economic Outlook Improves as BOE Poised to Raise Rates

Any increases in United Kingdom interest rates in the coming months will be "gradual" and "limited", the Bank of England governor Mark Carney has said, but "some withdrawal of monetary stimulus is likely to be appropriate over the coming months" to help return inflation to its 2% target.

The BoE expects price growth to remain above its 2% goal in the coming years and said on Thursday it may soon need to lift its benchmark rate from a record-low 0.25%.

Carney's comments come after the Bank's monetary policy committee (MPC) issued a surprise warning it could raise interest rates as early as November.

However, BOE Governor Mark Carney rushed to cool the enthusiasm of policy bulls, saying Britain is still lagging behind other G7 nations economically, which is only the third time in three decades the United Kingdom experienced such an economic slowdown.

He added that any looming increases in borrowing costs likely will be gradual in pace and limited in extent.

Mark Carney again warned that slack in the United Kingdom economy is diminishing and that this reduces the UK's tolerance of above-target inflation.

Carney said: "On balance, the de-integration effects of Brexit can be expected... to be inflationary".

He said any reduction in openness with the European Union is unlikely to be immediately compensated by new ties of a similar magnitude with other trade partners.

"In addition, Mark Carney warned that on the supply side of the economy, Brexit-related uncertainties are causing some companies to delay decisions about building capacity and entering new markets and warned that prolonged low investment will restrain growth in the capital stock and increases in productivity".

Mr Carney's comments come in light of the market now pricing in a near 100 per cent chance of United Kingdom interest rates moving upwards within 12 months.

GBP USD Forecast: Fed Rate Decision on the HorizonMarkets are now preparing for tomorrow's big September rate decision from the US Federal Reserve, with many claiming that the Fed will announce the tapering of its bloated $4.2 trillion Dollar balance sheet and perhaps even hint at a rate hike sometime in December. Consequently, he concluded "as a result of these factors and the general weakness in United Kingdom productivity growth since the global financial crisis, the supply capacity of the United Kingdom economy is likely to expand at only modest rates in coming years".

"Mark Carney is right to be gloomy about our post-Brexit prospects if we continue to follow the prescription of the Treasury, the CBI and the Bank of England", John Longworth of the British Chambers of Commerce (BCC) said.

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