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giftedviz.com February 25, 2018


Bank of England raises prospect of higher rates as global economy booms

10 February 2018, 01:42 | Austin Hogan

Bank of England raises prospect of higher rates as global economy booms

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One major factor beyond the control of Governor Mark Carney and the rest of the Monetary Policy Committee is what will happen to Britain's attempts to negotiate a new trade relationship with the European Union, its main trading partner.

Investors moved swiftly to price in a growing likelihood of a quarter-point interest rate hike in May to 0.75 percent, which would be the bank's second increase in six months.

"The Bank of England has been pretty adept at guiding investors' rate expectations: as a outcome, markets took the autumn rate hike in its stride".

"Although the MPC won't explicitly say so given political sensitivities, we expect their decision in May to be nearly entirely determined by whether or not a transitional deal has been fully agreed and signed by then", UBS fixed income strategist John Wraith said. Over the past year, stocks, particularly in the US, have seemingly been on a never-ending rise with little pullback.

We have already seen the pound suffer since yesterday's gains.

Pay growth has gathered a bit of pace and Carney says it might overtake inflation this year, restoring some spending power to households.

"Specifically, the minutes observe that if the economy develops as now expected in the February Inflation Report monetary policy would need to be tightened" Archer said.

He said this week's sharp falls had only taken markets back to where they were two months ago, adding that investors may have overlooked the inflationary consequences of healthy growth figures across major economies.

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If Brexit progress remains smooth, then a rate hike in May looks like about a 75 percent racing certainty, which is a jump from a 50/50 coin toss prior to Thursday's announcement. And for those paying interest on a credit card, it's a good time to switch to an introductory 0% offer.

'As well as this crucial fact, the rest of the world is also doing way better than many people would have thought a year ago, so it makes it easier for the United Kingdom'.

While a future rate rise is likely, current rates remain low.

It leaves the door open to a potential rate hike as soon as May, with markets also now pencilling in more than three hikes within three years. That said, rates would need to be hiked significantly to make a real, noticeable difference to consumers. The investment landscape has evolved in recent years with the extension of ISA limits and the introduction of the Innovative Finance ISA (IFISA).

The Organisation for Economic Cooperation and Development, the West's leading economic think tank, said the UK's economy would grow by 1.6 per cent - up from the 1.2 per cent it predicted just a few months previously.

The central bank has raised its economic growth projection for the coming year to 1.8 percent from 1.7 percent last time, largely because it has raised its global growth forecast to 4 percent from 3.75 percent.

Yesterday's claim by the Monetary Policy Committee (MPC) that United Kingdom interest rates may need to rise faster than the Bank of England (BoE) had predicted just three months ago continues to boost the GBP/AUD exchange rate this morning. Pension transfer values as measured by the Xafinity Transfer Value Index remained high during 2017, fluctuating throughout the year but ending the year at £236,000; little changed from the figure of £234,000 at the end of 2016.



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