United Kingdom interest rates set to rise as inflation hits 3 per cent

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United Kingdom interest rates set to rise as inflation hits 3 per cent

New Bank of England Deputy Governor Dave Ramsden said on Tuesday he was in no hurry to vote for an interest rate hike because he saw little sign of inflation pressure building in Britain's labour market. "Despite continued robust growth in employment there is no sign of second-round effects onto wages from higher recent inflation".

Speaking before the Treasury Select Committee one of the MPC's newest members, Professor Silvana Tenreyro, said that while in the immediate aftermath of the European Union referendum the trade deficit had increased, the gap between imports and exports was now closing. Mark Carney, the BoE governor, has stated his opinion that an interest rate hike is forthcoming.

Silvana Tenreyro, the LSE professor who was appointed in June to replace known MPC "hawk" Kristin Forbes, said that as spare capacity in the economy is eroded, she will be minded to vote for tighter policy.

"The tick upwards in inflation will increase expectations of a rate rise from the BoE later on this year, stoked by a flurry of hawkish rhetoric coming from Threadneedle Street".

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

'There has been much talk of a rate hike later this year by the Bank of England, but with so many areas of weakness in the economy, and high levels of indebtedness, a rate rise could be a step too far for the Bank of England, at least until there is more clarity on Brexit, ' he said.

Speaking to United Kingdom lawmakers in a second Parliamentary questioning session Tuesday, BOE Governor Mark Carney retained his stance on inflation.

He said it is more likely than not that he will write open letter to Chancellor Philip Hammond, explaining why inflation exceeded the target by one percentage point. "We expect that inflation will peak in and around the October figure, October-November figures, peaking potentially above the 3% level".

"We expect BoE rate hike expectations to remain well supported into the November inflation report and they will continue to underpin GBP against Euro and USD", CACIB adds.

The BoE has said most of its rate-setters think they will need to raise interest rates "in the coming months" to head off a build-up of inflation pressure.

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