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It May Raise Interest Rates In 'Coming Months', Warns Bank Of England

It May Raise Interest Rates In 'Coming Months', Warns Bank Of England
In the forthcoming months, people and investors can expect a rate rise in the U.K. said the Bank of England, even though it has left the rate steady in its announcement on Thursday.   
The Monetary Policy Committee (MPC) noted that a strengthening economy and inflationary pressures could prompt them to shift their policy stance sooner than anticipated even as they voted by a majority of 7-2 to keep rates at a record low 0.25 percent.
Stock levels of government bonds at £435 billion ($574 billion) and corporate bonds at £10 billion ($13 billion) was also agreed to be maintained by the bank in the meantime.
"A majority of MPC members judged that, if the economy continued to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure then … some withdrawal of monetary stimulus was likely to be appropriate over the coming month," the central bank said.
However, there was an upward jump in the sterling as investors sensed a more hawkish approach due to the shift in the way the bank spelled out things even though the freeze in on the interest rates was largely anticipated by markets.
Sterling rose to $1.3317 against the dollar shortly after the announcement. It traded at 0.8923 against the euro.
It expects two interest rate hikes over the period of the next three years, which is one more than previously estimated, the central bank had said at its August meeting. However, that was likely to take place in the third quarter of 2018, Governor Mark Carney and his fellow rate-setters had said at the time.
A hike will come far sooner than that in response to higher inflation, suggested Thursday's announcement.
"Coming months is not what the market had priced before this meeting if November is truly on the cards, but with 9bps (basis points) for November and 21bps for February the market was not completely ignoring the risk in recent sessions," Jordan Rochester, currency strategist at Nomura, said in a note to investors.
"The BOE have been upping the rhetoric and this was one of the final hurdles in their communication steps, but it does not mean November is guaranteed. What it will do is shift the emphasis on market economists who have very few hikes in their forecast over the next two years and that could further support the market too."
The Bank of England had set a target of 2 percent in inflation rates and new figures released on Tuesday showed that the inflation rose in August to 2.9 percent which was well above the bank’s target. It expects inflation to rise to 3 percent in October before moving lower, the Bank of England had said in August.

Christopher J. Mitchell

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