Sunday 21 January 2018

UK interest rate rise still a year away - analysts

Governor of the Bank of England Mark Carney. Photo: PA
Governor of the Bank of England Mark Carney. Photo: PA

Jonathan Cable

It will be early 2016 before the Bank of England raises interest rates from a record low, according to economists who largely brushed off hawkish talk last week from officials suggesting a rate rise might come earlier.

The British economy's strong momentum despite extremely low inflation now meant the decision on when to raise rates from 0.5pc would come into sharper focus around the end of this year, Governor Mark Carney said last Thursday.

Some interpreted that to mean that rates might rise by the end of the year as the remarks followed news of higher pay growth and a hawkish speech from outgoing Monetary Policy Committee member David Miles, who said rates should rise soon.

But the latest Reuters poll of over 50 economists, taken after Carney's speech, said an initial 25 basis point hike wouldn't come until the first quarter, followed by an identical increase in the third quarter and one more before end-2016.

"Although many will take Carney's bold words as a clear hint that rates will rise this year, it is worth bearing in mind the similarities with last year's Mansion House speech," said Allan Monks, economist at JPMorgan.

"The Governor then warned that rates could rise earlier than expected... But subsequent MPC communications then presented a much more nuanced picture."

Goldman Sachs economist Andrew Benito, who held his forecast that rates won't rise until the second quarter of 2016.

Over the past week, markets changed their bets and are now pricing in an initial hike in the first quarter, earlier than previously, with part of a hike by the end of the year now priced in. Sterling hit a seven and a half-year high. (Reuters)

Irish Independent

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